Washington DC Bubble? The Debate Rages

Posted by: Dean Foust on March 31, 2008

DC Fireworks.jpg

We’re a victim of our own success. A little less than three years ago I wrote an entry to this blog, titled “Washington DC Bubble?” that was fueled off of a return visit to D.C., where I lived for nine years (’89 to ’98). We were visiting old friends over Spring Break, and one of the houses next to my old place was on the market – for more than $500,000! (We’d sold our house for $228,000 in late 1998.) I went through the Nine Levels of Sellers Remorse, unable to believe how much money we’d “left on the table,” but after I calmed down, and did more thinking and more research about the DC housing market, I came to this inescapable conclusion: The Washington market was a big soapy bubble that at some point would pop.

I penned that entry, was quickly taken to task by Washingtonians who didn’t agree with my view, and the battle was joined. That thread became the most followed in the history of Hot Property – with, as I type this, nearly 1,300 entries! But we’ve gotten complaints from some followers of the thread that it’s become too unwieldy – that it can take forever for the full page to load. We consulted with our programmers to see if they could chop the thread’s comments into three different entries, but they couldn’t. So there’s only one solution: I’m starting a new thread, “Washington DC Bubble? The Debate Rages” and ask that you post comments here.

And here’s my latest two cents on the DC market: Several weeks ago I posted a new entry that my old house was on the market, with the current owner asking $529,000, which was well above what I’d sold it for but below the latest valuation estimates from Zillow et al.

As I noted at the time, in my view that price was still way to high. I now have news that the house sold after just a few days on the market, but first a big confession and concession on my part:

myoldhouse.jpg

This is not my house. My apologies, and I wasn’t trying to mislead, but there are a couple of houses on my old street that are pretty much cookie-cutter, and this was one of them. This house is a couple doors down from mine, and when my wife and I saw this house listed as a "Featured Home" on Realtor.com, and was listed on Monticello Avenue (a cul de sac with only 10-12 houses), we assumed it was ours. But that said, it’s a pretty good proxy for what my old house is worth, since they’re pretty identical. And I just got the sale price courtesy of Frank Borges LLosa, a real estate agent who runs the FranklyRealty web site. The sale price: $520,000.

I know what the bulls are saying: A house is worth what someone else is willing to pay. I’m sorry, but that’s still way to high and I think the buyer is going to regret paying this in a few years. I did some calculations estimating what this house should be worth, if the DC housing market had followed a more realistic trajectory (the inflation rate plus a couple points of “real” appreciation). By that measure, this house should have a “fair value” of around $370,000.

So in my mind, it’s just a matter of time before the house like this on Monticello Avenue in Alexandria hit $370,000 – either by falling to $370,000, or by treading water for enough years – say, about a decade -- until the trend line actually reaches $500,000.

So that’s my two cents. Anybody want to debate the point?

Reader Comments

Kittles

March 31, 2008 3:44 PM

I agree wholeheartedly. I work for a firm that helps agents advertise their listings. And I can't tell you how many times I hear the agent say "these people are going to lose $150,000 on the sale of this house". The last time I heard this was last week and the house was bought 2 years ago. No basement, one level, 3 bd, 2 bath, flat roof, no dining room, W/D in the kitchen. List price $699,000 in Arlington and the owner was going to lose $150,000 if they were to get full list price. Ouch!!!

Spencer returning

March 31, 2008 8:28 PM

Given the fresh start and new rules, I will come back into the thread and make a few points that also address some of the previous points

Current prices: there was a lively debate over how prices have changed in the area recently. the Washington Post 2008 outlook is out (http://www.washingtonpost.com/wp-srv/realestate/features/2008/housing-outlook/?hpid=sidecar) and you can nicely view price changes year over year by county and zip code. You will see that Montgomery, Arlington, and Washington DC did well on a net basis relative to farther out counties and relative to the broader country. Great Falls prices btw increased year over year in fairfax per my claim on the previous thread. Also if you compare the price data to assessment changes year over year, you will see they are very similar (not by coincidence as the assessments are driven off of comps - of course the absolute numbers are not very supportable, but the year over year changes are good indicators) So, I reiterate my claim that the most desirable areas have done well (ie a 'flight to quality') while the outer areas have faired poorly.

Other parts of the world - I was not debating current real estate price trends, but rather making a longer term point of how expensive homes are relative to incomes over the long run. See http://www.demographia.com/dhi-ix2005q3.pdf which has an analysis of affordability compared to just a handful of other countries. The US is #2 (canada #1) in affordability with Australia, Ireland, New Zealand, and the United Kingdom being more expensive. Of course, this report rightly points out that several US markets including Washington are still overpriced relative to affordabilty, but this does not imply a big crash, and my thesis is simply that on a net basis, the area will be flat for the next 10 years until income catches up. The report also excludes several other expensive markets in Europe and Asia and other parts of the world and if anyone has those statistics (i can't find them) please post the link so we can prove this point. My overall point is that in many many other countries, the structural norm is a higher percent of income goes into housing.

Current interest rate environment: it has been well documented that the non sub-prime mortgage market is suffering from a technical liquidity crisis which has caused pricing to fall out wack relative to 30 year bonds and fundamentals. This was driven by inadequate leverage standards that allowed many buyers of mortgage backed securities to lever up to unacceptably high levels to try to juice returns. As a result, even small drops in value are driving liquidations of portfolios and flooding the mortgage market. This has caused liquidity to dry up and drive up spreads even for securities that have seen no noticeable change in default rates. So spreads are much higher than normal as a result of technical liquidity problems, not default or fundamental issues, and this is precisely the problem the gov't is trying to solve.

Inflation - see http://www.washingtonpost.com/wp-dyn/content/article/2008/03/28/AR2008032801745.html on the latest inflation report. Inflation is at 2%, far below the long-term historical average and even good by recent standards. This is why the Fed has continued to be comfortable cutting rates. See http://inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx?dsInflation_currentPage=0 for a history of inflation which demonstrates that 2% is well below the long-term average

So hopefully that addresses the last couple posts. A few new points:

-Nobody has countered my argument that very very few people in the Washington DC area are having financial problems. See the previous thread for my analysis

-Nobody has countered my argument that Washington will outperform economically in a recession. There were some broad generalizations about spending being cut, but suffice to say I just totally disagree with that given the political environment.

-Per Dean's comments above, I completely agree the market is overpriced relative to historical norms. The question is will it go back down or stay flat. The 90s is a good case study as the market overheated and then was flat for 10 years. I am predicting that will happen again, and I haven't seen any evidence to suggest otherwise, other than the good points people make about the pending increase in gov't retirees - that is a great point and merits special attention

Trae

April 1, 2008 12:14 PM

Yay, thanks Dean for the new thread! I wasn't going to install FF just to browse the previous thread...but at the same time it's so interesting and I wanted to participate.

Thomas

April 2, 2008 10:53 AM

My biggest issue is the lack of good housing in the area. Housing that is move in ready and does not need a great deal of work. If I am going to pay high dollars, I want it to have newer windows and a newer roof. So many people have moved into a home and have not taken the time to maintain it. This quote from the Washington Post Outlook 2008 particular struck me:

'The house is beautiful. The curb appeal is great. But your kitchen is tired,' " said Joe Luber, 65, chief financial officer of a law firm. "People come in, and they don't want to lift a finger to do anything themselves. It's tough out there."

Given that another 21 houses in the same price range remained on the market, Fairweather told the Lubers they needed to target buyers in the next lowest price bracket -- $700,000 to $750,000 -- if they wanted to sell swiftly.

http://www.washingtonpost.com/wp-dyn/content/article/2008/03/28/AR2008032802063.html

If I am going to pay +700K for a house, I want it to be in excellent condition. I earn 110K a year and most homes that are in good condition are outside my price range. Homes in poor condition are not selling at a delta great enough to compensate for repairs that will need to be made. I am waiting for prices to stabilize and pricing to be more in line with condition; my money and I are waiting for next year.

Guy

April 2, 2008 6:09 PM

I will happily join the discussion, but try to address my counterpoints, not go off on some tangents..

#1, I won't address the trend in prices. I'm not sure what data the washingtonpost is using but it's largely useless imo. I will explain. A. Homes have gotten bigger since the 90's (so prices should naturally be higher). B. More expensive areas will hold their value longer because people with money are likely still able to afford more expensive areas. C. When prices drop all around a surrounding neighborhood/city/county/state, prices WILL drop in the adjacent area (unless prices rebound for the area). Why? Simple laws of economics. If a condo in Fairfax is $200k, but $400k in DC, more folks will be tempted to buy in Fairfax, and thus the demand/price for DC real estate falls.

#2, First off, there's no such thing as a "technical" liquidity crisis. It's just a liquidity crisis. Banks aren't writing down their assets (realizing losses) because of some technicality. Home prices are dropping, and thus the assets that are affected by home prices are written down accordingly. Secondly, do you understand WHY interest rates have been so low over the years? Because foreigners have been happily buying our debt (which drives down the price of 10yr treasury bonds, and lowers interest rates for J6P to buy a home). They've also been buying our MBS paper throughout the world, but that market won't return. You say it's a liquidity crisis, but that's just regurgitating what people on TV say. We have a liquidity crisis for a reason (I would argue insolvency in many cases). No one any longer wants to buy these securities! Why? Because they're not worth as much as they thought they were, and it's hard to accurately value them. I can't go into a whole lot more detail about this without discussing how ratings from ratings agencies affect the market, as well as bond insurers, securities markets work, etc. Take my word for it though, it's not simply a "liquidity crisis" but a "confidence crisis." Keep in mind, nothing will restore confidence until balance sheets are opened up to investors and/or the housing market bottoms.

If you look at historical interest rates, we're at all-time lows. Again, remember that the Fed DOES NOT control long term interest rates, but the bond market does. A very strong case can be made that we WILL revert back to 8%+ 30yr fixed rates, only question is when. If that happens, home prices HAVE to drop, as a home just got 33% more expensive (assuming a rise from 6%->8% rates). Why will the rates likely rise back TO THE NORM over time? Because foreigners are showing a much lower demand for our debt, and we are their debtors. Money is a commodity like oil/steel/gold. If the supply is low, price (the rate) goes up, it's that simple. That's what's happening in the current mess. The problem is that our financial companies bought all this toilet.. err mortgage backed paper, and housing is dropping like a rock. No one wants to buy it, so they're stuck with a cancer on their balance sheet, and no one will buy it (and they can't afford to sell it for 20cents on the dollar).

Also, spreads are rising because RISK is rising everywhere. There are numerous articles that credit card default rates are rising SHARPLY, along with auto loan default rates. Banks are charging more because of the risk (and what I said about money being a commodity).

"So spreads are much higher than normal as a result of technical liquidity problems, not default or fundamental issues, and this is precisely the problem the gov't is trying to solve."

Woah woah woah.. I encourage you to check out a 10Q of many banks/lenders. Look at the default rates for a lot of loans held by these companies, and the delinquency rates. Where have you been lately? Baltimore/DC foreclosures rose >500% from '06 to '07, "not fundamental issues??!" WOW. Delinquency/foreclosure rates on alot of MBS's are rising steadily (hint: which means they're not worth as much).

Here's Mish's blog for the lazy:
http://globaleconomicanalysis.blogspot.com/2008/03/wamu-alt-pool-revisited.html

Let's see.. a rise from near 0 to 11% foreclosure rate in this specific pool in JUST 6 MONTHS! Oh ya, things are sure great out there.. nothing to see here. Of course, you will likely say "well, that's not just the DC area." And while you'd be right.. if you don't think the widespread mess will filter down to DC, you'd have to be delusional.

#3, The inflation data you referenced is laughable. Again, I will EXPLAIN it to you. What data did you cite? CPI. Well what does CPI NOT include? Food, energy, home prices.. Hmm.. a smart person would ask.. "So what IS included?" Toys from China, shirts from China, electronics, etc. All stuff you don't NEED. Read up on CPI (as I can tell you're not familiar with it). Now, as long as you don't need food/energy/shelter, you're not seeing any inflation! :-D

Basic math would show REAL inflation is in fact much higher than 2%, and has been for some time. Basic math on gas/food prices over the last 10 yrs will show this. I can go on in detail as well about how inflation (for non-essential goods) has been held in check thanks to "globalization," but that is out of scope of this thread. Another good read I suggest you to check out..

#4, "Nobody has countered my argument that very very few people in the Washington DC area are having financial problems" >500% increase in foreclosures I guess doesn't mean anything eh..? National trends affect local trends, always have, always will. See #5. Also, I know many folks who purchased recently who are underwater on their homes. I don't mean to use anecdotal evidence in my statistical analysis, but it's pretty alarming. Basically most of the first time homebuyers in the last several yrs are underwater. I'd consider that a big "financial problem" that will rear its ugly head if we don't bottom VERY soon (and you know my opinion on this).

#5, "Nobody has countered my argument that Washington will outperform economically in a recession." I agreed with you here. Do you understand what "outperform" means however? According to a definition: "to surpass in performance." That means if unemployment rises to 10% nationally, and DC unemployment rises "only" to 8%, we've "outperformed." No thanks. I'll pass on "outperforming."

#6, Look at Shiller's index to see the difference between now and the 90's. It should become obvious to you VERY quickly how things are different than the 90's (look at the DC metro index value).

Whew this got long. Now, if you can address my counter points vs. going off on a tangent, we can have an actual "debate." I look forward to a well argued response.

Again, I reiterate. If you're looking to buy a home in the area, I would recommend waiting at LEAST till '09, and reassess the situation.

Trae

April 4, 2008 8:26 AM

Hey Guy, if we're relocating in 2 years, it's not a wise decision to buy now, right?

Spencer

April 4, 2008 10:26 AM

Guy,


#1 - didn't understand your point generally, and to just say you are ignoring the washingtonpost data entirely is not helpful. While the market as a whole in washington is clearly down, in certain areas like great falls and parts of arlington, montgomery county and washington dc, the market is doing just fine as indicated by the data. please post any data supporting your argument.

#2 - suffice to say you will have to trust me that i understand the financial markets and we just disagree. Your basic theory that 'the world is collapsing and if you disagree you have been suckered by the media/politicians and don't understand the financial markets' is not constructive. obviously, i am aware the fed does not 'control' rates. it would also be absurd to suggest the fed does not have an impact on rates or else there would be no point to rate cuts up or down. As an expert on the financial markets, i assume you also realize that assets become hard to value when liquidity dries up. If you flood the market with an asset, prices tend to go down because there is only so much demand. Call any mbs trader and he will tell you that overlevered mortgage hedge funds have been liquidating their positions in the last few weeks which has driven spreads above fundamental levels - that's been the whole issue lately.

Now, on to foreclosures. Your % increase stats are misleading. foreclosures have gone from virtually nothing to a still small % of overall homes in the area, of course the percentage increase will be very high by definition when you start at almost nothing. More importantly, the foreclosures are extremely concentrated in the washington area to certain areas (e.g. the 'ring of fire' the washpost calls it) that was ground zero for sub-prime. Take a look at the pictures of the foreclosed homes and you will see they are by and large poor condition, undesirable homes. There is not a foreclosure crisis in most parts of the area. Of course they happen like they always have, but you are exaggerating the severity of the problem.

#3 inflation - i am sorry if you want to ignore the standard inflation statistic used for decades. Feel free to provide other sources but you come across as an extremist making baseless generalizations when you call the standard inflation metric 'laughable'. btw, your emphasis on gas prices is interesting - guess what developed country has the lowest gas prices in the world today?? the US! it is literally 2-3x cheaper to buy gas today in the US than most countries in europe as the taxes in europe are much higher.

#4 - you haven't addressed my point other than to make generalizations. My thesis is a) less than 10% of homeowners are underwater which i laid out in the previous thread and provided data b) Very very few people in the washington dc area are in a dire financial situation given the stable employment base. Hence, the drop in prices is meaningless to the vast majority of homeowners in the area.

#5 - not sure where you get this future 8% unemployment estimate for washington metropolitan area. Please post historical washington dc msa unemployment rates, i couldn't find them on the web but i'm sure they're there somewhere. i would be willing to wager a lot of money it has been extremely low even through recessions.

#6 - i believe shiller starts in the early 90s (if you have data earlier, please post). it does not show the run-up % in the 80s which were absolutely huge and comparable to the 00-05 run-up. it was over 100% if i recall correctly. i agree with you generally that shiller is the best statistic, i haven't seen it analyzed on a more detailed basis than the area as a whole though. would be great to have it on a zipcode basis so we can show the differences across the region.

Thomas

April 4, 2008 2:05 PM

I found this in my wandering today. I know, this is not a high minded broad look at the factors that effect housing conditions, but it illustrates a point for me closer to home...home being my wallet.

I live in a 1005 SqFt condo across the street from metro and I pay 1640/monthly. There is a unit two floors above me, exact same unit, that is for sale for 336,900. Plugging in the following numbers:

Rent 1640.00
Home price 336,900
Down 30%
Mortgage rate 5.75 (30 year fixed)
Prop Tax .96%
(rent tab)
Rent Deposit 1 month
Rent Broker Fees 0
Rental Insurance 1.1%
(Buy tab)
Condo Fees 413.00
Common Charges 0.0
Cost of buying 5.0%
Cost of Selling 7.0%
Mortgage Length 30 years
Annual Renovation 0.1
Annual Maint 0.0 (in condo fees)
Insurance .57%
Cap gains excl 500,000
Utilities 140.00 monthly
(General Tab)
Rate of return 9%
Income Tax rate 18%
Inflation rate 2.5%

Home price appreciation is set for 3% and rent increases are set for 3% a year.

Based on this, If I bought the condo up stairs, it would NEVER be more advantageous than renting the same unit. I would be throwing money in a hole I call my home.

Now lets leave everything the same but price the condo at what it was selling for 4 years ago soon after it was built; approx. 235,000. All of a sudden, I start to see a advantage in 5 years. Hmmmm....We can argue how we got here and what the issues are; I am interested...really. But this illustrates the bottom line to me. I am not strapped for cash, I earn 110K a year so I am above the area average by most figures for Northern Virginia. I am fiscally responsible; in fact, it is that fiscal responsibility that keeps me out of the market right now. Every way I crunch the numbers in my planning spreadsheet, it does not make sense to buy, even if I put less down.

A few notes: I am in the 25% tax bracket but my real tax burden last year has just over 18%. I sold my home 2 years ago so last year was my first year without home based deductions.

I realize that this calculator is very general but it is not so far off of my spreadsheet based on my current financial situation. I would rather use this than post my personal information on the web.

If I put 10% down, the numbers look good in about 14 years. My spreadsheet captures this well, but the calculator does not. You will have to take my word for it.

5% buying costs may seem high but I include the cost of moving and all the odds and ends you buy to turn a house into your home. Window treatments are not cheap! When you factor that in, 5% looks reasonable.

Thomas

April 4, 2008 2:22 PM

I found this in my wandering today. I know, this is not a high minded broad look at the factors that effect housing conditions, but it illustrates a point for me closer to home...home being my wallet.

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=2&th&emc=th&oref=slogin&oref=slogin

I live in a 1005 SqFt condo across the street from metro and I pay 1640/monthly. There is a unit two floors above me, exact same unit, that is for sale for 336,900. Plugging in the following numbers:

Rent 1640.00
Home price 336,900
Down 30%
Mortgage rate 5.75 (30 year fixed)
Prop Tax .96%
(rent tab)
Rent Deposit 1 month
Rent Broker Fees 0
Rental Insurance 1.1%
(Buy tab)
Condo Fees 413.00
Common Charges 0.0
Cost of buying 5.0%
Cost of Selling 7.0%
Mortgage Length 30 years
Annual Renovation 0.1
Annual Maint 0.0 (in condo fees)
Insurance .57%
Cap gains excl 500,000
Utilities 140.00 monthly
(General Tab)
Rate of return 9%
Income Tax rate 18%
Inflation rate 2.5%

Home price appreciation is set for 3% and rent increases are set for 3% a year.

Based on this, If I bought the condo up stairs, it would NEVER be more advantageous than renting the same unit. I would be throwing money in a hole I call my home.

Now lets leave everything the same but price the condo at what it was selling for 4 years ago soon after it was built; approx. 235,000. All of a sudden, I start to see a advantage in 5 years. Hmmmm....We can argue how we got here and what the issues are; I am interested...really. But this illustrates the bottom line to me. I am not strapped for cash, I earn 110K a year so I am above the area average by most figures for Northern Virginia. I am fiscally responsible; in fact, it is that fiscal responsibility that keeps me out of the market right now. Every way I crunch the numbers in my planning spreadsheet, it does not make sense to buy, even if I put less down.

A few notes: I am in the 25% tax bracket but my real tax burden last year has just over 18%. I sold my home 2 years ago so last year was my first year without home based deductions.

I realize that this calculator is very general but it is not so far off of my spreadsheet based on my current financial situation. I would rather use this than post my personal information on the web.

If I put 10% down, the numbers look good in about 14 years. My spreadsheet captures this well, but the calculator does not. You will have to take my word for it.

5% buying costs may seem high but I include the cost of moving and all the odds and ends you buy to turn a house into your home. Window treatments are not cheap! When you factor that in, 5% looks reasonable.

joe

April 5, 2008 10:03 AM

Guy, I agree 100% w/ #6. In just the last year & 1/2 alone I've seen asking prices in my area (NOVA-Kingstowne area) drop for 1-2 car garage THs drop from over 500k to the mid 400k range. Not all but many and they are not all short sales/REOs now but pre-bubble buyers who are leveraging their faux equity to move the home. I am seeing a greater abundance of short/REO sales and I am seeing alot more rentals. I'm holding off on buying now & not catch a falling knife. Historically the biggest drops occur at the beginning of a housing downturn for ~3 years. So we've got ~ another 1.5-2 years to go. My lease is up in the fall of 09 and I might renew for another year as bottoms are not a moment in time but occur for several years also. But I will be looking for a sweetheart deal in the fall of 09. Good luck.

Spencer

April 8, 2008 11:21 AM

Guy,

I wrote a response to your note on friday but it has not been posted yet so it might have been lost, hence I will go through it again

#1 - I could not understand what point you were making. My point is that certain areas of DC are doing well through this downturn. Check out this story in the washingtonpost that discusses how the market is better for good neighborhoods http://www.washingtonpost.com/wp-dyn/content/article/2008/04/05/AR2008040500121.html. Also, i'm not sure how to respond to your blanket statement that all washpost data is "useless". please post real estate data that is neighborhood specific if you have a better source. case shiller unfortuantely is only for the entire dc area. I have also checked on zillow (of course not a perfect source, but another datapoint) and ran 1 yr price changes and came up with the following data: bethesda - up 3%, great falls - up 1%, arlington - up 1%, chevy chase - up 8%. On the other hand down markets include sterling, va - down 12%, woodbridge, va - down 12%, manassas, va - down 12%. The poor market environment is heavily concentrated in areas father out from dc that got into subprime trouble (see below). if you look at the infamous nova housing bubble blog http://novabubblefallout.blogspot.com/, you will see that virtually all same-house sale listings that show declines are in the same 3 markets - woodbridge, manassas and sterling. so - i will reiterate that the better markets are doing just fine in the area

#2 - you seem to be implying that liquidity does not effect prices, but rather prices are only impacted by intrinsic value. That would logically mean there is no need for publicly traded markets. In fact, the entire rationale for the existence of publicly traded markets is to provide liquidity. A key aspect of any free market economy is that people will be willing to pay extra for a security that provides liquidity vs once that is not liquid. this is precisely why for example a company will almost always register their debt publicy after issuing it privately - investors demand liquidity. When liquidity dries up, you have to provide an investor a discount to take on risk they might not be able to sell it quickly

This is also why prices fluctuate all the time outside of fundamentals. For example, when altria spun off its international tobacco business last week, altria's stock dropped 5% because investors were rotating out of the stock and buying the larger, higher growth international business. there just weren't enough buyers at that time to support the price. Are you seriously suggesting that in reality the reason for the short term price fall was that for that moment, the fundamentals of the stock changed?

The point is, it is just completely wrong to assume liquidity doesn't effect prices. Of course I agree with you that some of the drop in value of mortgage backed securities is due to a rise in foreclosures, poor performance etc, but a portion of it is also due to a huge liquidity problem. mortgage backed securities are flooding the markets (as a result of overlevered companies holding them which led to margin calls and liquidations when values came down), causing a liquidity issue as opposed to just a massive change in fundamentals. when the supply / demand inbalance works itself out, prices will go back up. btw, please post any data you have to support MBSs being worth 20% of original value as you claimed

now, regarding the much publicized inrease in foreclosure rates in DC. first of all, the % change math is massively deceptive because the rate started from nothing, so of course the % increase will be high. if I start with a 99% score on a test and on the next test i get a 97%, it would be ridiculous to suggest I faired poorly because my error rate went up 300%. Secondly, i refer you to the recent washpost story http://www.washingtonpost.com/wp-dyn/content/article/2008/03/22/AR2008032202086.html which discusses the 'ring of fire' and the fact that foreclosures are highly concentrated in certain areas. you seem to be saying the entire market is in a foreclosure nightmare which is just wrong.

the MBS snapshot you posted doesn't say or demonstrate anything. we know nothing about where those homes are, what the situation is, etc. plus, it is one MBS that bloggers seem to be jumping all over. that's like sending a news story about the kansas basketball team losing a game earlier in the year and claiming the team is not doing well. what we are debating on this board is one thing - what direction we think the DC housing market market will head.

#3 - I really don't know how to address your claim that the CPI, a stat that has been used and accepted as the inflation standard for decades, is 'laughable'. please post your inflation data to back up your point rather than just making broad claims. btw, you keep mentioning gas prices which i agree are clearly at historic highs. keep in mind however that the US in fact has some of the cheapest gas in the world even today, it is about 1/3 the price of gas in europe due to the massive taxes there.

#4 - i agree with you that recent buyers are underwater in several places, but as my analysis on the previous post demonstrated, it is less than 10% of the area. please post your counter-analysis to this.

#5 - please post your data that demostrates that 8% unemployment is possible in the wasington dc area. i belive that historical levels have been much much lower than this including in recessions. See http://www.bls.gov/web/laulrgma.htm which shows the area has the lowest unemployment rate in the nation other than new orleans (distorted right now b/c of the rebuilding effort). I can't seem to find on the internet the historical numbers, but I would be very surprised if the rate has ever gone above 5%.

#6 - unfortunately the shiller index stats i have seen start in the early 90s, after the last bubble of the late 80s. i would be willing to wager that the percent increases in the late 80s were close to what we have seen from 2000-2005. pls post the data if you have it

JJ

April 8, 2008 3:30 PM

Interesting debates. I don't know where the prices will go. All I know is that the prices are TOO high for 1st time buyers. Wihtout new buyers I cannot imagine how the house prices can stay the current level.

Jim

April 8, 2008 4:23 PM

Most overpaid in the bubble and their ego never allowed them to question the mathmatics of the deal! Prices are on their way down big time! I wrote an offer on a hom ein the DC area in 2004 for over 750K, and by the grace of God lost out to 5 other bidders. It is now goign for about 525K. OUCH! Financing has disappeared, people are sobering up and realizing that this was a bubble that could not sustain itself.

The hardships we are currently experiencing in real estate from sub-primes delinquency is a direct result of over 50 Billion dollars in mortgage re-sets in 2007. In 2008 we are going to deal with over 500 Billion in sub-prime mortgage resets, and Alt-A loans will start resetting later this year. This is 10X worse than what we saw last year! This is what happens when you think you can buy with no money down! One thing is for sure this is like Wal-Mart's ads..."Watch the Falling Prices!"

Guy

April 10, 2008 1:58 PM

Spencer,

#1, You sidestepped my main point. Bravo. We can't have a debate if you don't address the issue/point I bring up. My point was that if a home in Manassas costs 50% of the same home in Fairfax/Arlington, you honestly don't think prices in closer in neighborhoods will fall? I know you'll say "well prices haven't fallen 50% in manassas" but in fact they have. So, Econ 101 will dictate that prices will fall in "better" neighborhoods because the incredibly cheap price in further out neighborhoods is worth driving a little more. Like I said, closer in neighborhoods will get affected and take haircuts last, but they're far from immune to the decline.

#2, I never said liquidity doesn't effect prices first off. I'm merely saying, the assets aren't worth a fraction of their original value solely due to a "liquidity problem." Because home prices are falling, and the assets tied to home prices are being devalued (thus making it hard to determine their real value), this causes these specific securities to be illiquid (who wants to buy an unmeasurable asset?). It's a snowball effect. My point is that we have illiquidity BECAUSE of falling real estate values.

Regarding my claim of asset backed securities being worth a fraction of their original value, you can find plenty of examples out there. I'll use one from last yr. Forgive me, as I will simply recite the details off the top of my head, but you can look up the data if you want. Etrade dumped several billion dollars worth of asset backed securities (can't remember exactly what they had, but i believe was tied to HELOCs, 2nd mortgages, etc.), and sold them for I believe about 30 cents on the dollar (I think the actual number was 27 cents..). Now, of course that buyer likely got a discount since the securities are largely an "illiquid" asset, but how much was their true "book value?" I can't imagine worth more than say 50-60cents on the dollar. Lower tranche securities are in fact worthless, as they take the first losses, before other senior tranches. Read about MBS and you will see what I mean. These things were sliced and diced so many different ways that it becomes incredibly difficult to value a security, based on the tranche, wide variation of loans it holds, locations of the different loans, etc. Anyway, I'm straying off my point, but the point is people aren't selling these securities that are actually worth 90 cents on the dollar for only 30 cents merely because there's a liquidity problem.

I posted that snapshot btw because there's a HUGE resounding point you're missing. Repeat after me. MACRO MARKETS AFFECT MICRO MARKETS! With CA, FL, AZ, real estate markets going into the toilet (and arguably DC as a whole as well), liquidity will only get worse for the housing market.

Btw, did you ever think that EXCESS LIQUIDITY has quite the opposite effect of a "SHORTAGE OF LIQUDITY?" What do you think we had during '02 till '05? Excess liquidity caused speculation/ramp up in prices (not based on fundamentals). Now that this liquidity is disappearing, so will the premium that caused a blow off top in real estate values.

Regarding foreclosure rates, that's a nice analytical point, except the part where you're ignoring the ACTUAL DATA when making your point.

Take a look here: http://www.washingtonpost.com/wp-dyn/content/article/2007/06/14/AR2007061400513.html

"The percentage of U.S. mortgages entering foreclosure in the first three months of the year was the highest in more than 50 years, according to the Mortgage Bankers Association."

Sure that's not DC specific, but I doubt historically foreclosures are on the low end for DC either. And remember, MACRO trends effect MICRO markets.

#3, If you want to think like a sheep than so be it. I believe CPI is used so retirees get screwed on SS, as CPI is used to make cost of living adjustments. Our CPI measurement has been widely criticized, I'm not the first to bring it up. Just because you're not aware of how it's a flawed measure of inflation, doesn't change the fact. I see you didn't in fact research "globalization," or the answer would be clear as to WHY CPI has been low for a little while now. Ah what the heck, I'll explain it to you.. The premise behind CPI is that food/gas prices tend to be very volatile, and thus they're left out of the equation. The logic is that rising food/energy costs will INDIRECTLY be factored into the equation, since we all have to eat/use energy, and thus the price of goods will rise to compensate the rise in food/energy. BUT, here's where the problem comes in. If you push your production to China, and offset the higher energy/food costs by using cheap labor, what have you done? You've found a loophole in the statistic! Company profits can stay high by using this one time "efficiency" and thus prices stay low, despite rising food/energy prices! Brilliant, eh! So, do you see now how CPI is a problem? Since the US moved almost all of its manufacturing overseas, prices never rose, and thus inflation appears low! Whew, that was long.. Btw, I know "gas price is cheap here," you're straying from the topic again.. We're discussing inflation, not gas prices relative to the rest of the world. Focus.

#4, I don't have the data, merely anecdotal evidence, like I said. I know a handful of first time homebuyers that purchased from '05-'06, and they're ALL underwater (ranging from 25-50%, very ugly). Some substantially more than others. An interesting statistic I saw beginning of '07 was that "homeowners'" home equity was at an all-time low (since the GD), when home prices were at an all time high. Logic would tell you something is SERIOUSLY wrong with the fundamentals of our real estate market with that statistic.. Again, I don't have hard data, but looking at some larger trends, it appears things are quite ugly. Again, MACRO trends affect MICRO markets.

#5, LOL.. I was talking hypothetically. I was referring to a recession/depression if it occurred. What was the unemployment rate during the last GD? Much higher than 8%, that much I know. Your original point was about "outperforming," and I'm merely stating that "outperforming" doesn't mean squat if everything's going down the drain.

#6, Shiller's national data goes back to the 19th century, just not DC specific I believe. You can google to find any of his data. And no, price increases in DC in the 80's were NO WHERE CLOSE to the price increases we've seen '00-'05 (I've seen a 2-3x increase from trough to peak for many homes). One other interesting piece of data is that wage increases have largely been stagnant from '00 to '05.

Bottom line, home prices had a bubble just like tech stocks in '00. It's the SAME exact thing. There was excess liquidity for tech companies in the 90's, and there was excess liquidity for real estate this decade. Both will end in tears for speculators who didn't get off the train. Wages didn't grow strongly (which is necessary to support high prices), and thus prices WILL come down a good amount. I say an easy 20-30% more.

I've been watching/posting to this blog since '05, and it's rather fascinating watching it over the years. Good luck to everyone.

Guy

April 10, 2008 2:25 PM

I got some free time today, so I'll throw in an extra point, which builds on top of Jim's point and my point about excess liquidity in the real estate markets.

First I'll start with historical data.. During the Great D, liquidity was excessive and plentiful. What was the big problem that caused a stock market crash? Highly leveraged bets (notice I didn't say "investments," as they're one in the same), and improper risk management. During the Great D, you could buy stocks on 10:1 leverage! :-O What is leverage? Liquidity. The problem with excess liquidity/leverage is that if/when the tide goes back out, you're in deep doodoo. If you made a bet with 10:1 leverage, and the stock drops 15%, you're in the hole 5% of the value of the whole position. If you can't afford to cover the loss, the bank/broker eats it. Now, think about that for a hot second, and replace stock with home. Guess what, you have the same thing! Of course a home is more illiquid than a stock, but it's the same concept.

You had a VAST number of buyers purchasing homes on 5% down, and many even with 0% down. Who's holding all the risk? The bank. So, when the tide goes back out, there's ZERO recourse for the bank, and the "homeowner" can mail them the keys. (Credit scores are a joke because they can be fixed in a decade, but a 200k loss will take much longer, and people walk away.) The more leverage allowed to the speculator/investor, the more risk in the game. Low/no money down loans essentially allow you to speculate with the bank's money (and who wouldn't do that!?) It's a giant Ponzi scheme. Heck, looking back at homes, the increasing rate of appreciation in home values supports a bubble to the T.

The formation of a bubble starts and ends the same way every time. Look at a stock that experiences it and it's NO different. What happens is the price appreciation starts gradually, and gets more and more rapid until it pops (also called a blow off top for stocks). Why does this happen every time? Simple. Human psychology never changes. You have the early/smart investors, then the sheeple gradually pile in trying to "make an easy buck." By the time you have everyone and their mom talking about it, there are no more buyers, and it's coming to an end. Look at the Nasdaq and home prices. I recall in the DC area how price appreciation got more rapid as '05 approached. Textbook.

Ah well, I apologize, I'll end my rant. The "this time is different crowd" always shows up during the creation/formation of a bubble (as is demonstrated in the start of this thread). It happens every time like clockwork..

Bubba

April 13, 2008 12:27 AM

In my opinion, there are two parts of the DC real estate market.

The first is those locales that are already feeling the pain. See Loudoun Cty, Manassas, etc. where prices have already fallen 20% or so and foreclosures are rampant. In these areas, land is (and was) plentiful so it's not surprising that prices have fallen dramatically from the peak. And, I suspect, they could fall quite a bit more since the run-up in prices ignored the fact that those areas weren't facing the type of constraints that can justify high prices.

The second, and more interesting, part of the market are close-in locales like Arlington and neighborhoods in DC like Capitol Hill, Columbia Heights, U St., etc. These are places where land clearly is at a premium - you cannot build more land in Georgetown no matter how much you try. That having been said, I do think that prices in those places ran up much more than rents in the areas suggest would be reasonable.

I suspect that these areas won't see drastic falls in prices. But we could see a sustained period of flat prices, just as we saw in the 90s. Even still, it's tough to know how the financial turmoil and the difficulties in outer suburbs (and market segments like condos) will spill over into these areas.

Ten years from now, the far out suburbs will have experienced brutal price declines (and these are part of the greater DC metro area, so we can't discount their experience, not to mention that the pain in those areas might spill into areas that seem more insulated from problems.) As for areas that are closer in, I think that it's more of a toss-up whether prices will notably decline or will just stagnate.

But, and I'll go out on a limb here, we won't see 20%+ appreciation per year anywhere in the DC market anytime soon. You might think that's a straw man, but think back to 2005 (or the beginning of this thread.) How many people were arguing that the 20%+ annual appreciation at that point was reasonable? A lot. But it wasn't. And it still isn't.

Do we have to crash to get back to the long-term trend? Not necessarily, since prices could just flatten for years to get things back on track. But the real estate market around here won't be pleasant for most people, and could be nasty if you're in a outlying locale. And it could be nasty even in seemingly safe places if problems start to spill over.

Spencer

April 16, 2008 10:29 AM

Guy,

#1 - i didn't purposely sidestep your point, i just found it confusing which i clearly stated. in any regard, your 'econ 101' point is just wrong in my view. There are plenty of examples of prices going in opposite directions in areas that are very close together. I agree that at extreme points there is probably some impact from one neighborhood to another, but I don't see poorly performing neighborhoods materially driving down the better performing neighborhoods. Now, to be like you, you have completely ignored my point that several areas of DC are doing just fine and the poor areas are heavily concentrated. this is an absolutely critical point to understand the dc market. In analyzing the market more and more, i actually think looking at the DC market as one MSA is foolish as the areas doing poorly are really doing terribly, while many neighborhoods are holding steady and in some cases are up. The poorly performing, subprime driven hyped markets well outside the beltway are bringing down the market as a whole and distorting the picture

#2 you said a lot there and i am sure you will criticize me for not addressing every one of your detail points, but let me try to at least address the substance of what you are saying. First, of course i agree that intrinsic value impacts pricing. My point is liquidity issues arise all the time in markets irrespective of intrinsic value that effect prices. There is no question that the levering of mortgage backed securities and subsequent drop in prices has massively magnified the amount of securities flooding the market, which has caused prices to drop beyond changes in intrinsic value. Your hypothetical is humorous in that you actually make the point that liquidity impacted the pricing of MBSs by 100%! (30 vs 60)

Please please just stop the comments like 'repeat after me'. It continues to cross the line. Now, on the issue of foreclosures, I still can't make out your point. Foreclosures in the DC market are extremely concentrated to certain areas. Outside those areas, the foreclosures rates are much lower in the washington area. that was the entire point of the article i sent you. the story you sent me says nothing about dc and is consequently totally irrelevant to the discussion. Humorously though, the story says 'The problems weren't uniformly spread around the country. Doug Duncan, chief economist for the mortgage bankers group, said the rate of new foreclosures would have dropped had it not been for big jumps in California, Florida, Nevada and Arizona' i can't think of a statement that makes the point better! your blanket statement that 'macro trends effect micro markets' just doesn't carry substance. please post data supporting this

#3. more condescending markets 'focus' etc. please discontinue that. anyway, suffice to say i think it is a reach to suggest i have no credibility because i believe the cpi is an important datapoint in inflation. You are making arguments that are way beyond the topic on this board and lack and substance. please post data indicating your inflation statistics. Also, i think it is important that despite gas prices increasing, it is still much cheaper than other countries and represents a smaller % of expenditures than other countries.

#4 unfortunately, there is nothing substantive to your comments here. I have analyzed the market and come up with the thesis that less than 10% of homeowners are underwater. Of those that are underwater, a small percentage are in financial distress as a result of this area having the lowest unemployment in the nation. Quite simply, outside the heavily concentrated 'ring of fire', the vast majority of homeowners in the area still have positive equity and jobs for life. There is no economic distress in the area.

#5 if you are arguing we are going into a great depression, that is probably a point that makes this discussion irrelevant. i suppose that if a nuclear bomb went off in dc, real estate prices would go down, but i'm not going to dwell on the possibility. I haven't seen any credible economic analysis that suggests we are going into a great depression, and i will repeat my assertion that the DC area will continue to have meaningfully lower unemployment than other areas in the country. btw, i did find unemployment statistics on the dc MSA area and the peak unemployment going back 40 years was 5.4% for a few months in the early 1990s, then dropped below 5%.

#6 please post the data. i am willing to concede the point that % increases were higher in the 2000-2005 than other times if i can see the data.

You have a lot of passionate views about where the economy is headed and i respect that. i believe however that you have gone well outside the scope of this discussion. what we are debating is what is going to happen to the dc markets. your blanket 'macro markets effect micro markets' is just not substantive enough to make the point about dc. for example, some markets in this economy are meaningfully benefitting from the current market environment, like texas and other areas exposed to energy. I also believe the government sector will be insulated and even benefit from the current situation given the political climate. hence, i believe dc will not suffer the fate of detroit, las vegas etc. There is a wealth of data on historical unemployment, gdp growth and housing trends to support the case that the market won't collapse. that is my point and i would appreciate you debating that and that only.

Guy

April 17, 2008 11:47 AM

Spencer,

I can see I'm getting nowhere with you, and that's fine. I've learned over time that people will believe whatever they want, and thus I will just cease discussing this with you.

The point/problem with your analysis however is that all your analysis is backwards looking. You say "prices haven't fallen in good areas yet" but aren't we forecasting the future, not looking in the rear view mirror? During the tech bubble, we had people JUST like you who said "everything's fine, keep buying stocks" and they never could see the forest from the trees. Home prices in "good areas" will drop just like any other bubble/recession. When a sector experiences a bubble, there are plenty of "good companies" that get beaten down despite them being strong companies (ie: throwing the baby out with the bath water). Notice how many "good companies" declined after '00, simply because the euphoric optimism raised the prices of everything. Housing will be the same. Good areas are just like "good companies" during the tech boom, and better neighborhoods will fall (and have fallen).

Also, my citing of macro info is very relevant, I'm sorry you don't understand that. If bubbles pop in Cali, banks will be crippled, and it will hurt the economy, etc. It's not like the 19th century when you had a very localized "system." These days, local markets affect national markets and vice versa. You cite all kinds of subjective data, like "the government will keep spending." I only have to counter this data with the fact that we have $53 TRILLION dollars worth of unfunded liabilities right now for our govt. Either taxes will have to go up or spending will have to be cut. The US has become the kid with a credit card, and at some point it will end. That's a fact.

#6, http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,3,1,0,0,0,0,0.html

Click the data tab, and look at the excel sheet for "home price values." Index values exist for major cities. I do find it comical how you're making the case that "home prices will merely flatten" yet you haven't even looked at this data. What data have you been looking at?

In Jan '00 the index was at 100. The data doesn't go back past '87 but there was never anything similar to the rapid appreciation we saw over '00 to '06 (Home prices rose 2.5x, ie bubble). Notice in Jan '02 the index value was ~125. It peaked ~251 in May '06, and as of Jan '08 we're currently at ~212. My "safe" target is ~150-160. Which means a good 20-30% drop. Looking at historical trends, you could easily make the case for a much larger drop. Keep in mind my drop of another 20-30% is "conservative" if you believe prices need to revert back to the historical mean (shiller says ~120-130 i believe).

Anyway, good luck with your decisions. I'm trying to help anyone/everyone in the area by making them aware of the risks. The trend right now is for a 20-30% decline. A flattening is against the trend. Do what you wish.

Spencer

April 25, 2008 2:24 PM

Guy,

It looks like this blog may be tiring a bit but I will address a few of your points even though you avoided almost all of mine.

I agree that prices fall for 'good assets' also in a downturn. However, there are also assets that remain high indefinitely. Real estate is much higher as a multiple of income in many other cities around the world. London is probably 4x as expensive as Washington DC and has been that way for a long time. Of course, prices will go up and down, but there are no simple formulas like a home price should only be 3x income over time. In London, that hasn't been the case for decades. My points is in each real estate you have to consider very specific factors such as: income, unemployment, industry/employment base, wealth, tax trends, quality of life, schools etc. Housing is nothing like a stock price where anyone can just buy and sell it at any time.

So, the important issue becomes analyzing specific real estate factors for Washington, not to use generic statements that all bubbles pop.

The most powerful negative point i have seen on this board is the pending increase in housing supply from govn't retirees. According to you btw, that shouldn't have an impact because intrinsic value effects prices, not liquidity issues. but i do not agree with that, i do see pricing pressure from larger inventories.

on the other hands, there are many factors that support real estate stabilizing: low unemployment, gov't employment base, large expat/diplomat community that is not as price sensitive, attractive public school systems, central eastern location, attractive public universities.

there is absolutely no doubt that prices are still ahead of long-term fundamental levels. I would guess they are still maybe 15% overvalued 'intrinsicly'. But the question is will it come down 15%, or just stabilize for the next 10 years until income catches up? my thesis has been that it will stabilize, consistent with how this market behaved in the 1990's after the 80's run-up. back then btw, prices barely came down at all, here we have a situation where prices have already come down substantially.

keep in mind also that in long run, we're dead, and there are a lot of people out there who need to buy and will eventually pile in. Once again, it isn't like a stock. Nobody needs to own a stock. over time, virtually any family will tell you they need to own a house because they need to establish permanent roots in a community so they can raise a family. rarely do families rent their whole lives and subject themselves to less stability. The market has been difficult for just about 3 years now. A lot of families just need to buy.

Mr_Dave_O

May 1, 2008 2:08 PM

Anyone still denying that we have a long way down to go (house prices) in the DC region before we reach bottom?

andrew

May 7, 2008 8:07 AM

The problem with this thread is that anyone who submits a moderated view on the housing market (e.g., one that accounts for different fluctuations in different neighborhoods) gets shouted down. It's no surprise it's petering out...

Guy

May 9, 2008 11:59 AM

Andrew,

I don't think it's "shouted down" so much as it is a "weak argument." You care to throw your "analysis" into this thread?

"This time is different" and "DC will be fine" aren't arguments, although it always shows up during a bubble. At this point we largely just have to sit and wait and see what plays out, rather than waste our breathe beating the dead horse and "discussing" what's going to happen.

Case shiller's data says it all imo. Within the last several weeks we've only seen a RISE in the foreclosure rate, delinquency rate, and a slowing in the sales pace, which makes this spring selling seasons a bust. We look to easily eclipse a 12 month housing supply this yr, which is not a good thing.. With inventory rising rather than falling, we likely have some time before things actually bottom. The credit markets haven't gotten any better, so financing will remain tight for many years. No more of that 0/5% down nonsense.

I was having a discussion with someone else about how "the San Francisco market is very strong and won't go down," months ago.. Well well, the Bay area seems to be coming down now.. Like I said before.. give the "better areas" some more time, and you'll see their prices fall just like San Fran.. The "our market is very strong" nonsense is/was deafening months ago, and the "stronger markets" are starting to come down now..

Spencer

May 12, 2008 9:32 AM

Guy,

You keep avoiding the central point here, that the real estate situation is very specific from neighborhood to neighborhood, and several areas are doing just fine and are not showing signs of massive price drops. In fact you just totally ignored the entire point of Andrew's post. I refer you to today's washington post story on how washington might be impacted by the economic downturn

http://www.washingtonpost.com/wp-dyn/content/article/2008/05/10/AR2008051000741.html?hpid=sec-business

it makes exactly the point i keep making over and over again. a) it is likely the dc economy will weather this storm better than other areas b) the real estate downturn is extremely concentrated to farther out areas. It is ridiculous to say the case shiller data says it all as the data covers the DC MSA as a whole which is being highly impacted by the ring of fire foreclosures in certain areas well outside the beltway.

Feel free to claim my arguments are weak, but your rebuttals are overly simplistic generalizations without any specifics. for example i'm not sure how to react to your great depression and macro markets effect micro markets points, they lack substance. I have requested over and over again that you post data or have concrete facts supporting your points, and you just come back with 'your arguments are weak'.

D.C.M.

May 12, 2008 5:48 PM

First time posting, although I've been following this thread for some time now. I thought I'd point-out relatively recent data released by the Northern Virginia Association of Realtors:

http://www.nvar.com/market/pressrelease/prnv_April_08.html

Apirl YOY for average sales price: negative 8.59%

April YOY for median sales price: negative 12.02%

Trae

May 13, 2008 8:22 AM

I still think you're going to see the Baby Boomers hit the brick wall of reality pretty hard. They're going to have to make the decision to price their homes based on the current market, or risk being stuck up here through retirement. If it were me, it'd be a no-brainer. I almost (*almost*) feel bad for them, except then I realize it's their greed getting in the way of wise decision-making.

Andrew

May 13, 2008 9:54 PM

Thanks for proving my point. Sayonara, folks!

Guy

May 14, 2008 10:59 PM

Spencer,

I'm not avoiding anything. Your whole argument is "the closer in suburbs won't be affected." The classic "my neighborhood will be fine but the worse ones will drop" argument. I get a good laugh from you guys, as it seems like the housing bulls haven't capitulated. The ones left have gone from "there's no real estate bubble, prices won't decline," to "the good areas will be fine." The final progression I bet will be "my street/neighborhood will be fine." lol

I cited the data you wanted, yet you didn't address it. How do you explain the huge ramp in prices the DC real estate has experienced? You think prices will stay elevated forever? You don't think the credit bubble has overly inflated prices? I'm not even sure what point you're trying to make.. closer in neighborhoods HAVE fallen 10-15% in price, look at tax records for many homes that have sold.

You citing that article as some sort of expert opinion is a joke. Notice the point starts with this: "People in the real estate industry say.." lol The NAR has been saying a bottom would occur every qtr, and said there was no real estate bubble. lol I will stick to hard numbers and big investors that agree with me, not the pathetic real estate industry.

My rebuttals are "overly simplistic?" lol You haven't even addressed the credit bubble and its effects on housing, and also don't seem to understand how the Fed really works. Your whole argument boils down to "it won't be that bad," and my points are simplistic.. ;-)

Andrew, Take a hike. You haven't made one point thus far. Perhaps you're an out of work realtor and just bitter? Don't worry, with the crackdown in illegals perhaps there will be plenty of openings in janitorial positions. This thread is petering out because people have accepted that a bubble is popping. Look at all the ridiculous arguments the realtors were making a couple yrs ago in the other thread. lol

Spencer

May 15, 2008 3:07 PM


DCM,

agree with your data, but it is very very skewed toward the sub-markets that are doing very poorly. Many areas inside the beltway are not declining in value. A house in North Arlington that sold for $1.5m in 2005 is still going to sell for $1.5m in 2008. however, a $600k house that sold in Ashburn, VA in 2005 might go for $400k today. so you can add the 2 together and claim the market is down 10%, but that would make no sense if you wanted to buy in North Arlington. Also, my view is that the pain is bottoming out from a price perspective and that $400k house will hold its value.

Spencer

May 20, 2008 11:08 AM

Guy,

You're all over the map. First of all, my thesis has been that we are bottoming out in washington dc and will be entering a period of long-term flat prices. i never said prices haven't fallen. On the contrary, i have said over and over that prices got ahead of themselves, have come down significantly in certain areas, and in my view will flatten out now over the long-term. You have made radical claims, for example that we are headed for the great depression, and that washington dc will suffer. i have pointed out that dc has over and over again not suffered economically as much as other areas, and there is no evidence to suggest that the trend won't continue.

I have also pointed out that several areas have held up well including north arlington, chevy chase, many parts of dc etc. in general, close-in desirable neighborhoods have not seen massive price increases and have performed well this spring. There is a story in the WSJ today that covers this precise issue in many areas.

With your immature, inappropriate comments (like the one to andrew above), i have to once again stop posting here. Unfortunately this thread has degraded again and it is not enjoyable go back and forth like this. best of luck to all in your home investments

Guy

May 22, 2008 1:19 PM

Spencer,

My point is and has been that prices HAVE fallen in closer in areas, and will continue to fall. I understand closer in neighborhoods won't fall "as much," but they're still overvalued, and thus I'm expecting another 20% to the downside.

DC has never experienced a big boom like cali in the 70's, etc., so it's an apples to oranges comparison you're making. This is a NEW thing for DC, not just some regular occurrence.. So, to say "DC hasn't suffered as much as other areas" is a poor comparison, because DC always used to be a cheap/non-flashy place all throughout the 80's. So sure it's fared very well historically, but historically home prices were more in line with mean/median national prices, and now we're one of the statistical outliers..

I understand the argument that "good areas will not go down as much." I'm not debating that. The problem I have is when people start adapting their view, based on the results, rather than looking at the data, and adjusting their view. Let's look at the actual opinions..

In '05, it was "prices won't go down, blah blah blah." Then it became, "prices will go down a little, but the closer in areas will be unaffected." Now it's, "the very close in/specific neighborhoods won't go down much more." You see what I'm getting at. This isn't different from any other city. San Fran, LA, etc. all went through the same psychological stages. What you're doing is cherry picking your statistics, which is pathetic. Of course you can ALWAYS cherry pick some good data out of the bad, but the fact of the matter is prices are going down. Will some areas/neighborhoods/streets/specific homes be fine? Quite possibly, but such a small sample doesn't mean a whole lot.

Citing some wsj article doesn't mean it's a fact. I remember plenty of articles saying "the subprime problem is contained" last yr. lol How'd those predictions turn out?

The thread has degraded because you consistently fail to stay on topic and debate the points. I find it laughable that you merely threw out the Case-Shiller index because "the outter suburbs are dragging down the DC area." You have also done a good job setting up a straw man and tearing him to shreds. I never said we WILL have a depression, just that given our crazy deficit/spending/etc, there are problems on the horizon, and it's a real possibility.

I really should stop posting, as I've had so many "discussions" over the last several yrs with folks about markets/housing/etc, and essentially the simple answer I always get is "this time was different." *sigh* Best of luck to you as well, I'm sorry you don't enjoy a good/healthy discussion.

Guy

June 2, 2008 9:54 AM

Spencer,

I said a depression COULD be coming, based on many reasons, not that it's a certainty. My arguments have been very clear and directed towards your points, with some of my other general assessments of our economy thrown in. I would hardly say I'm "all over the map." There's little question our economy is headed for rough waters. Read some of Walker's opinions (old Comptroller General) or Mishkin's recent talk about the financial state of the US and it's no laughing matter (Mish just resigned from the Fed). I strongly urge you and anyone else to read some of their speeches/talks.

Second off, how can you even compare the DC area to "historical times" when DC never had HUGE rapid price appreciation in the past, but it's happened recently?? You're comparing apples to oranges, that's the problem. During the 70's or whenever, I believe CA had tremendous price appreciation, but the DC metro area chugged along w/ flat appreciation. So yes, historically the DC area has done well, but this time around we joined in and had huge levels of appreciation. Historically, look what happens to places that have huge levels of appreciation..

Citing one article that supports your logic/reasoning doesn't make your argument true. There is a recent cnn article that says the DC area will fall another ~10-14% (can't remember the exact #), in the next yr. Does that mean it's going to happen? No. The point however is, there are plenty of "experts" with differing opinions. So merely citing saying "joe smith said X will happen" is silly.

I understand your argument, I just simply don't agree. Like I said, the areas that "won't be affected" continue to shrink as time passes, just like in San Francisco. Like I said before, historically, rapid price appreciation is followed by rapid price depreciation. How far down we'll go is hard to say, but to think the bottom is right here and now is merely a little naive imo.

Don't get all bent out of shape by my comments. This is just the internet.. :-P Things can get a little "heated" at times, and I do apologize for the immature comments, etc. I just have a very strong opinion and don't think you've appropriately supported your belief that "home prices will stay flat" vs. go down. Historically, EVERY period of rapid price appreciation is followed by (usually) rapid price depreciation. Housing was a bubble, and bubbles generally deflate, unless something can provide enough pressure to reinflate them. My comments to Andrew were "inappropriate" simply because he provided the typical "cheerleader" commentary instead of joining in the discussion and adding to the discussion.

Interesting thing to note.. the 10yr treasury is back over 4%.. I said some time ago that there was a serious risk of rising interest rates and it looks like it could be playing out. Higher rates for potential homebuyers may be the "final straw."

Best of luck with your investments. Take it easy.

Bubba

June 2, 2008 10:18 PM

Good god folks, it's amazing how snarky this thread can get sometimes. If you look back on its predecessor, you'll find that it always degenerated into these type of silly attacks before eventually returning to a more reasonable level of discourse. So please, people, keep it civil. You don't win arguments by shouting people down, even if you're convinced in your position.

That having been said, it seems that the current debate deals with how broad the downturn actually is. And I'd argue that the breadth of the downturn is difficult to measure. In particular, the Case-Shiller index doesn't, to my knowledge, break things down at a level finer than metro areas. That's because C-S is based on repeat home sales, and repeat home sales are rare enough that data on specific areas like Clarendon, U St., etc. are statistically meaningless - there are simply too few observations to draw any conclusion. Thus, C-S doesn't report price figures on that level (again, to my knowledge.)

As a result, we're left with anecdotal evidence and the NAR data for evaluating individual neighborhoods, where the latter suffer from the problem of possibly comparing incomparable homes. I would say that, based on these data sources, there are a number of (qualified) conclusions that one can draw:
1) Prices have fallen dramatically in the far out suburbs.
2) Prices are not rising in any notable way in close-in suburbs, but also aren't falling in the same way that they have further out.
3) The broad DC real estate market is trending downward. At the same time, however, we haven't seen a uniform, and I repeat uniform, crash in housing prices.

In my humble (unlike those of other posters on this thread) opinion, I think that you'll pay a stupendous amount less than you would have two years ago if you buy in Loudoun or PG county. But if you want to buy in Bethesda or Georgetown or Clarendon and aren't buying a condo, you're still facing high prices and substantial competition from other buyers. I've long been a bear on DC real estate (please see my posts on the earlier thread), but I don't see evidence of major price declines in desirable neighborhoods. If only one were willing to live in Manassas...

JOTE

June 10, 2008 7:41 AM

What I noticed reading through these discussions is that, most of you all still defend the declining housing market that has been hapening for a while. I know for the fact that most of you bought a house in this area and I am sure some of you guys are investers. There is nothing wrong with telling the truth. It don't matter what you say, you have no control over the market and you can not persuade no one at all. Keep on dreaming!
1.2 million houses on forclusure, millions still expected soon and you guys still talk about how houses keep values, regardles of what's going on. $6 gas. Economy in recession, the dollar weakening, Iran war comming soon, high food prices. Buying a house is the last thing in most peoples mind. There is going to be millions and millions of houses in the market but no buyers. People get desperate and sell theire homes 50% less than the market value, even 75%. A lot of people had been tricked by lenders and the governement. The governement collected billions of dollars from taxes as a result of the housing boom. They new this was going to happen at end. I even new that. People who did not qualify to buy a home bought without jobs, downpayment, good credit history. Even some Illegal aliens bought with fake documents.
"The time to buy a house is Now" scam is not going to fly around anymore. In fact, it will discourage people from getting one.
I will never buy a house unless I see the price go as much as 75%. I want those 100K values back.

D.C.M.

June 12, 2008 4:30 PM

This may not be news to any of you, but I recently discovered Arlington County's Real Estate Assessment webpage (http://www.arlingtonva.us/Departments/RealEstate/reassessments/scripts/DREADefault.asp)

For those of you interested in Arlington County condos, I highly recommend using this site to see recent sales in particular buildings you may be interested in. Based on my sampling, I'm able to state that prices are falling in many Arlington condo buildings, i.e., people are selling condos for less than they paid for them 1-3 years ago.

This also conforms to the latest May data released by the Northern Virginia Association of Realtors:
http://www.nvar.com/market/marketstats/may08/arcondomay08.pdf

Arlington County Condo’s:
Average sold/net price = negative 14%
Median Price = negative 9%

Guy

June 12, 2008 8:57 PM

Bubba,

You're right, in the sense that the "best" *neighborhoods* are not falling in price. The fact of the matter is, this trend is NO different than declines in ANY other asset class. In a stock market decline, the weak get sold first and the strong hold up the best. Does that mean the best will not fall? Nope.

Also, with financials going straight in the toilet (and rising rates), expect liquidity to contract, making it harder to get loans (XLF is the ticker). Those that don't think CA's market affects DC don't understand macro economics. The level of defaults and NODs (notices of default, think of it as a pre-foreclosure step) going out are incredibly high (in CA). The housing market looks to be accelerating to the downside if anything.

I'm not sure how you folks define a "crash," but we had THE STEEPEST LEVEL OF DECLINES NATIONALLY in housing this past yr, since the Great D! That's a housing "crash." Houses are naturally more illiquid investments (unlike stocks), so a "crash" in stocks % and time was != a "crash" in real estate.

Commercial real estate looks to be next in line to get hit by the axe. I can't remember the article, but commercial space/vacancies are at an all time high for the DC metro area.

Liz

June 17, 2008 2:19 PM

I'm not a real estate analyst, nor am I a financial analyst. But I have been watching the market closely for four years and finally pulled the trigger. Why?

I've been looking to buy a one bedroom condo since 2004. A one bedroom in the area I was looking to buy was going for about 400k. It was simply too much to spend for someone who grew up in the rural south where that kind of money bought you a mansion, not 650 sq ft. I just made an offer on a place similar to what I saw in 2004 for 320k. I 'saved' myself 80k, right? Well, wrong. In the 4 years that I've been renting, I gave my landlord 70k towards his place. And that was a group home that I shared with others. My life sucked for 4 years AND I lost 70k. So I decided to get my own place so I could have some privacy and no more crazy roommates and guess what? A one bedroom apartment in DC was going to cost me 2k a month in rent. I could buy it for 2500 a month, get a tax credit AND a tax break on the payment that made owning cheaper than renting.

I'm all about investing conservatively but you guys are talking about homes in the way I talk about my short term investments. This is a HOME - a very very long term investment, one that provides you stability, tax breaks, and the freedom to do with it what you will. Could the market go down another 10%? 20%? Maybe, or maybe it could stay flat. But there is one certainty in all this and that is if I get a one bedroom apartment for a year, I WILL lose 24k. If I do it for two years, I WILL lose 50k. Even if there is a 50% chance that prices on homes drop another 10%, I am still in a better spot than renting. If you are looking for a home as an investment property, you're an idiot to buy now. If you're looking for a home in which to buy for yourself and your family, it is always a better time than to rent.

And another point, can we not forget that gas is 4 dollars a gallon? This is not a temporary change in price, it is a permanent one that will change the face of urban living forever. Suburbs are out, cities are in...not a trend, this is permanent.

P_Rank

June 18, 2008 3:11 PM

Liz,

Parts of your example do not make sense.

1. You lost $70k in 4 years; that is about $18 per year or $1,500 per month. That's a very steep rent, especially for living with roommates. There are cheaper options for a private 1-bd apartment within walking distance to Metro.

2. You did not "lose" $70k all at once. If you invested conservatively, you probably could earn $8-$10k over four years.

3. You never mentioned monthly condominium fees, which are, by the way, are not tax-deductible and tend to increase.

4. You will gain privacy from your roommates, but you will still have to put up with next door neighbors in your condominium. And unlike rent, you will not be able to move out if they make your life difficult.

You made your choice, but I would not recommend it to others. $320k for a 600 sq ft condo is way too much.

Guy

June 19, 2008 9:12 PM

I'm not sure what happened to my post, seems like it got lost in cyberspace. I had a nice response for liz before but I'll cut it short.

When factoring in the price of a home, you have to factor in interest. If you buy a $400k home, you end up actually paying ~$800k for it. So, in reality, you "saved" a lot more than just on the principal of the home. Of course you can deduct a percentage of the interest, but I would bet you'd only get back 1/3rd of the interest you pay. With owning, you also have property taxes you pay and maintenance. So, you came out well ahead of $80k (assuming the rates were the same now and then). Just a heads up that you're leaving out some very important costs from your analysis.

Noelle

June 28, 2008 5:27 PM

Liz,

Depending on where you live, condo fees and routine maintenance (forget calling the landlord when the washing machine breaks) essentially eat up a significant portion of your tax/interest deduction in today's market. There is also a huge disparity between rents and mortgages for similar properties, which is something else you need to consider. On that note, you are paying an absurd amount of rent if you're living with roommates, even if it is a house. My advice would be to find a cheaper rental that you can afford without roommates, as that's obviously a priority for you. Don't buy a condo that will lose value in the coming years, a certainty will be reflected in a higher interest rate (should you default, the bank is stuck with an asset that has lost value) for you up front, and, should you choose a fixed rate loan, you will be paying far more for a place today than you would be if you waited a few more years. How are you going to feel when those 2500/month condos are selling for 1800/month 2 years from now? That's the math you need to be doing. You made the right decision; invest your money towards a larger downpayment and sit tight for now. Contrary to what the real estate industry would have you believe, "now" isn't always a "great time to buy."

Ryan

July 1, 2008 2:05 PM

Liz,

I'd say if you feel you got a good deal for your condo and it was in good shape with newer HVAC and appliances. It was probably a good move for YOU.

Yeah, renting right now and waiting to see where the DC real estate bottom is a smarter play. But, Liz is talking about a quality of life move. Even as the market continues to slide in the next few months to 2009, you missed the 13-20% drop that happened in 2006-2007. And you have your own place and no roommates, which might save you money but it's maddening at times.

The Schiller-Case index reports home values were down 15% last month. but, it was only a 1% drop in the DC area.

Any ideas when DC RE will hit bottom?

I am thinking later this summer.

Also, on a side note... Liz is right about the suburbs, they are much more in-flux now since the subprime crisis... high-crime, lower property values, lack of infastructure is plaguing those areas. Granted not overnight but, the next generation of 25-35 year-olds are staying in the cities.. babyboomers are moving into the city as well and ditching their larger homes.

Mike

July 5, 2008 8:56 PM

Interesting comments... I wish they were numbered so we could see how this renewed topic compares to the old.

DC Metro housing has been expensive for far longer than the recent bubble... at least since the late 90s. That being said, I have noticed at least 2 trends.

1 - DC prices in particular are much higher than they would have been anytime pre bubble. Maybe this is the result of prosperity, gentrification, law enforcement, etc. I don't know, just that prices are much higher than they ever were in the past.

2 - There are a few neighborhoods that were "the" places to be back in say the 60s that are still have outrageous asking prices even though the neighborhoods no longer warrant it... the housing stock is old, they aren't linked to mass transit well, have few if any businesses or entertainment near by, and well, there are now new "the" places... take north Silver Spring/Colesville. It used to be what Potomac is now and they are still asking highly inflated prices for what you get. It might take another year, but I"m guessing that a lot of people will be selling their houses for close to what they paid for them 20 years ago.

Bubba

July 6, 2008 11:05 PM

It appears that this thread has currently focused on a seemingly simple issue: rent vs. own. I would argue that any rent v. own comparison is more difficult than people typically think. What's your tax rate? Are you subject to the AMT? What are housing prices doing in your desired neighborhood? And so on.

That having been said, you can find pretty good calculators online such as the eloan.com rent v. own calculator. Plug in your stats and, I suspect, you'll find that renting is typically a pretty good deal at this point.

Bubba

July 16, 2008 11:40 PM

Boooommmm!! There go Fannie and Freddie. And what about the banks? Do you have any idea what's on (or off) their balance sheets? You may want to buy a house, but IndyMac won't give you a loan (ka-bloom), nor will WaMu in all likelihood. So, at the end of the day, how does this turmoil in financial markets play out in the housing market? I can't see how things go well, even in a "strong" market like inside-the-Beltway, in the near term, but does anyone want to dispute that.

What's really interesting is that all of the bears, from years ago at the previous thread, had some intuition about what was going on. But I don't think that anyone really envisioned exactly how f'ed up beyond all recognition the banks would be. The big question, then, is how this bleeds into the housing market. And believe me, it's bloody. The question is how bloody.

Guy

July 18, 2008 1:00 PM

Bubba,

Exactly.. The financials have been a ticking time bomb. Overleverage + bad assets = big trouble.

This is why I was harping on "the larger economy" being a big problem and an important factor when considering DC RE. The "real estate is local" mantra is silly to strictly go by. The mess in the financials was clear to anyone that was actually paying attention.

Anyway, anyone's guess at this point in terms of "how bad it gets" is up for debate. I stand by my previous post and think we have an easy 20%+ further to fall in real estate prices. Could we see as high as double that? Sure.. if rates rise substantially in the future. Of course a 40%+ drop is less likely, but not out of the question.

I'm waiting at LEAST a yr and will reassess where things are at then. There's certainly no rush in buying a place.. after this market bottoms, it's going to be crawling with minimal % appreciation for years. Best of luck to everyone.

Guy

July 18, 2008 1:06 PM

Here's a very useful tool for those that want to calculate the amount they "save" in tax deductions when purchasing a home.

http://finance.yahoo.com/calculator/taxes/hom-09;_ylt=ApAcZEtcJ.SIT0a5ok9vLfS7YWsA

Like I mentioned before.. you can see that the amount you actually save by a price drop alone of say 10% on a home is ~18% (using a 25% tax rate). No small change around here..

JK

July 22, 2008 11:13 AM

I have been recently searching for a 3-4 bedroom house to buy in DC area and it has been a difficult process...prices are high and do not appear to fall anytime soon. High gas price has made eveyone want to move to DC, raising up the price, not lowering it, especially in the NW area.

Can anyone recommend a good area near DC (I work in 19th and Pennsylvania ave. NW), lots of trees and space, easy communite, good school district, i.e. what everyone wants??? thanks!

ibc

July 22, 2008 5:39 PM

Rational Bubblehead: "The DC market is a bubble! It's tanking!"

Me: "Housing prices in the city proper have actually increased."

Rational Bubblehead: "Just you wait!"

Look, some areas in the "DC Region" overappreciated. There's no question about that. But the house I live in is a two bedroom house 12 blocks from the Capitol. I jog to the National Mall.

Ten years ago people were getting gunned down in my street. And there was nowhere to get a decent meal.

Today I'm within walking distance of a completely revolutionized 8th Street, SE, and H St, NE.

The change in my neighborhood is reflected **quite reasonably** in the run-up in house prices. I think that's the part that many posting here don't understand. The run-up in prices in places like Manassas and PWC were completely irrational. In many areas of DC, it simply reflects the facts on the ground.

Will the schools improve? Objectively, they already have. More than likely they will continue to do so as the city itself continues to gentrify. The flip side is that suburban schools will regress for the same reasons.

My guess is that housing prices in areas like Capitol Hill and Columbia Heights actually will continue to rise to reflect this as well.

ibc

July 22, 2008 5:42 PM

JK Wrote:

"Can anyone recommend a good area near DC (I work in 19th and Pennsylvania ave. NW), lots of trees and space, easy commute, good school district, i.e. what everyone wants??? thanks!"

I think you've put your finger on the reason that some areas have increased while others have collapsed completely.

Real estate is local. Anyone who talks about the "DC Market" is clueless.

doh

August 14, 2008 9:24 PM

I came back just to say that I was correct. Thank you.

Trae

September 7, 2008 12:07 PM

Wow, can *anyone* still say with a straight face that housing isn't completely effed? How people think real estate is completely local in a global market are failing to witness macroeconomics at work. Our dilweed-in-chief's Treasury Secretary just announced the takeover of Freddie and Fannie for God's sake!

Repeat this over and over with me: "Nationalized housing, nationalized housing, nationalized housing..."

Bubba

September 7, 2008 10:55 PM

Booooommmmm..... There go Fannie and Freddie. For real this time.

Guy

September 11, 2008 12:37 AM

Sad day for sure.. What's more sad for our nation is the fact that nationalizing fannie/freddie won't stop the decline in home prices.

I believe now more than ever that we are guaranteed to have a NASTY recession, quite possibly a nasty depression. I don't think there's any need to debate the impact this will have on DC area real estate.

Looking back in this thread just back to the posts in May, it's clear that folks don't have a clue about what's happening on the macroeconomic level and are living "in their own world." Wamu is DEAD, and it will likely exhaust ALL the capital held by the FDIC, and we have more bank failures after them.. FDIC bailout will be next. Best of luck to everyone. Dark days are ahead..

Trae

September 18, 2008 9:21 PM

OK this is seriously getting out of hand, to the point where our children are going to be paying Bush's bailouts back in THEIR generation. Since when should greedy buyers and lenders be rewarded for their idiocy?

Guy

September 22, 2008 1:09 PM

For the real solution to this financial mess, visit:

http://fedupusa.org/

Everything else is merely a "patch," rather than a fix.

trae

October 1, 2008 8:20 AM

Well to all those fools who thought housing would never go down (yep, you all are sheep that couldn't see the truth if it hit you square in the jaw), I truly hope you're happy with yourselves. You are part of the problem, along with the banks and government. I truly hope this bailout doesn't pass, so that you all learn how to be frugal.

Trae

October 4, 2008 4:26 PM

I'll go way further than that.

1. Abolish the Fed. The Constitution, in Article 1, Section 8, clearly states who is in charge of coining our currency and regulating its value. It doesn't say "OK, pass an act to create ANOTHER institution to regulate currency." They are arguably the biggest criminal in the financial crisis.

2. Abolish all private contributions to campaigns, period.

3. Pass term limits for the Senate and House. The last thing we need are lawyers and business majors clogging up the system. This was not what the Founding Fathers intended.

4. Require full transparency of the financial industry's institutions.

5. Penalize the heck out of corporations that ship jobs overseas.

That would be a start.

Trae

October 9, 2008 6:11 PM

What's even scarier is you don't see anyone questioning the main culprit in this mess, the Fed. Honestly, what have they done RIGHT since its inception in 1913? And since when did the Constitution outline a central bank as the agency to regulate money?

Trae

October 14, 2008 10:36 AM

What's really disturbing in this whole RE and economic mess, is the culpability of the Fed. Noone seems to be pointing the finger at Alan Greenspan or his easy lending policies, deregulation of derivatives, etc. When are we going to wake and realize we don't really have a free market when we have a central bank?

gd

October 17, 2008 11:03 AM


This amazes me too - nobody has called Greenspan on his "it's not a bubble, it's just froth" comment, let alone him letting the whole housing bubble situation develop as a means of making the already precarious economy look healthy longer than it really should have

Bubba

October 23, 2008 11:57 PM

I can't think that there's anyone out there who still thinks that housing prices from a few years ago were at all realistic. At this point, it's not a matter of whether or not housing prices fall, rather it's a matter of where they end up. I would say, however, that looking back on the genesis of this thread, it's amazing how many people were "drinking the kool-aid", "touting the party line", etc. (pick whatever cliche you like.) In fact, such a position would be laughable.

Does anyone out there still want to take up the challenge of defending the fundamentals underlying DC real estate prices? If not, then we're in the typical "blame game" phase that follows any bubble. And because the popping of this bubble involves so many financial firms, it's implications are very different from the popping of previous bubbles (e.g., the telecom, dotcom, etc. bubbles).

I'd propose the following list of who's to blame:
1) The Fed - for keeping rates too low and discouraging oversight.
2) The rating companies - for giving AAA ratings to junk.
3) The investment banks - for underwriting that junk.
4) Investors - for buying that junk.
5) Lenders - for originating that junk.
6) Home buyers - for buying homes under unrealistic terms that yield junk.
7) Politicians - for setting up the regulatory structure that facilitated junk mortgages and encouraging the provision of those mortgages
8) Fannie and Freddie - for responding to the incentives provided by politicians

At the end of the day, almost everyone was responsible for this mess. It's actually quite amazing how comprehensive this screw-up has been. Now, like the presidential candidates, we could try to play partisan politics, blaming one party more than the other. But all were culpable in the breakdown. And we are now at the point where, as Bernanke said, "there are no ideologues during financial crises."

God help us all. In my view, that's where this thread has ended up. Honestly, look back through the earlier posts on this thread (and its predecessor) to see evidence of how we got where we are.

Nick

October 24, 2008 5:32 PM

so I guess this still is a horrid time to buy a house ;-)

I will renew my rental for another year

Guy

November 11, 2008 4:41 PM

I wonder how cheap homes will be in the DC metro area in a few years.. Anyone care to make a guesstimate for the hell of it? I think we got an easy 20-30% lower to go.

Man.. my "depression call" earlier this year is looking to come true.. kinda sad honestly.

Spencer (if you're still around), how's that bottom call of yours looking?? Remember how I was warning you of macro-economics and looking beyond your small bubble? To be honest.. this time period looks more like the late 20's than any other period in history. We're doing an exact repeat of Japan (except japan's consumers had savings). We have at least 2-3 yrs of more downside in real estate imo. The "capitulation" is not yet present in real estate in DC, which means we have significant downside to go. Buckle up folks, and best of luck to all.

Spencer

November 18, 2008 10:32 PM

Clearly the financial nightmare of September/October has changed the game, as it looks like we are heading into a severe recession. also the dollar has strengthened which hurts int'l investment here. But there are several signs that the DC market is bottoming out. absolutely i was wrong that it bottomed out in april, but I am still optimistic now we are flattening. The DC area has the lowest unemployment rate in the nation. It is estimated that 40k people are about to move here as obama takes over, and typically far less leave. dc will benefit significantly from bigger gov't in a democratic administration. and the number of units being sold has increased significantly which suggests a floor. heck there are bidding wars going on in the 'ring of fire' areas which saw the high foreclosures.

Trae

November 21, 2008 2:39 PM

There's a lot of good material out there for people to arm themselves with. Nouriel Roubini has been calling this mess for years, and although I don't agree with his Keynesian solutions, his analysis of the problems is dead-on.
An interesting book published in 1997, called The Fourth Turning is also very interesting. Written by two sociologists, they argue the economy is more psychological than anything else, and by the 4 generation (with each generation being approx. 20 years), you need to suffer a depression to "right" their flaccid mentalities. They predicted a depression on or shortly after 2005.
This is well beyond housing and for some reason, folks didn't see the writing on the wall with the stock bubble. I wouldn't even be surprised if the dollar is dropped as the international reserve currency, which would wreak havoc on us in the short-run, but it could lead to a renewed gold standard. That would at least prevent the govt. from running up silly debts.

Guy

November 25, 2008 11:31 AM

Good post Bubba. Like you said, there's PLENTY of blame to go around. It's not a partisan F up.

Despite me being negative about home prices.. I will take a few stances to defend the stance why the DC area will "outperform" compared to other areas. The simple answer is government jobs. That's the ONLY fundamental. We have seen lower unemployment levels around here, so that *should* help home prices a little. Now.. what "help" really means just like "outperform" is anyone's guess. Maybe CA may see a 70% peak to trough fall in home prices, where as maybe we'll only see 40-50% on average for the DC area? Who knows of course.

I do see this area faring better than other areas (looking at historical info during the depression, there were areas that were much better off than others, and I think the DC area should hold up better), but we're still seeing widespread deflation occurring, which will pull down home prices in the area. Expect wages to stagnate, raw materials to stay cheap (lumber has fallen 60%+ from a couple years ago), which should help bring home prices down. General contractors should be cheaper in the years ahead.

I find this thread incredible, as it's almost a daily/weekly case by case sample of the sentiment over the last 4-5 yrs. We had a "textbook" bubble, with a "blow off top" and everything. Pretty fascinating to look back on it, considering we just finished the tech boom bubble, and folks chased another bubble. Let's hope people have learned something from this bubble.. you need FUNDAMENTALS to support any price appreciation, "new age" economics is BS, simply put.

Best of luck to everyone.

Match

December 14, 2008 12:13 PM

Spencer,

Re your comment on the # of people who leave DC every year, I think you are way off: last I read, about 10% of DC Proper's population (588,892 - DC Census Data) leaves every year. That would be almost 59,000. So even with the Obama-clan invasion, DC Proper's population will remain steady or fall. So I'm still with Guy -- DC Proper's RE medium $ will have tremendous pressure to recapitulate as reality sets in.

Abigal

January 3, 2009 4:47 PM

Should I sell my inverstment 4 unit in DC area now? The rent I collect from the tenants do not cover 100% of the expenses (Mortgage plus utilities)

Guy

January 13, 2009 11:26 AM

Abigal,

No one can make that distinction based on a one sentence brief description of the situation. lol You have to take an honest look at it yourself. If it's cashflow negative now, I wouldn't necessarily say you should sell it. It depends on the area, type of place, etc. etc. etc. etc. Too many factors for anyone to say "yes" or "no" over the internet.

Bubba

February 11, 2009 11:10 PM

This thread (and all like it) are done. Not simply because the posts have fallen off, but because the issues that were debated are resolved. We've in the maelstrom of a complete financial disaster which roughly corresponds to the worst case scenarios of the naysayers who initially posted on this thread. Does anyone out there want to challenge the proposition that things are FUBAR? And that we're dealing with a financial disaster unlike anything that we've seen before? If not,

I OFFICIALLY DECLARE THIS THREAD CLOSED!

(And that's the last word. Cheers!)

Bubba

February 11, 2009 11:12 PM

This thread (and all like it) are done. Not simply because the posts have fallen off, but because the issues that were debated are resolved. We're in the maelstrom of a complete financial disaster which roughly corresponds to the worst case scenarios of the naysayers who initially posted on this thread. Does anyone out there want to challenge the proposition that things are FUBAR? And that we're dealing with a financial disaster unlike anything that we've seen before? If not,

I OFFICIALLY DECLARE THIS THREAD CLOSED!

(And that's the last word. Cheers!)

Spencer

February 22, 2009 1:23 PM

The DC area is practically the only city growing this year, due to things like the stimulus. A number of businesses like Audi and HIlton are relocating here. The number of homes being sold is much, much higher than last year. Hence, I see this area stabilizing pretty shortly, if not now. The key issue right now is non-conforming mortgage rates are still screwed up. rates for mortgages about 417k are about 2.5% more. if that difference narrows, it will also be a major help.

Guy

February 24, 2009 9:25 PM

A blip in sales (some numbers to back the claim up of "much much higher" would be nice) does not mark a bottom. I'm not seeing any "growth" either, so again, some facts would help support your claim. I do agree we're getting hurt less than other parts of the nation, but that's been my stance all along.

I wouldn't consider non-conforming mortgages "screwed up," especially since the spread on jumbo and conforming rates have been wide for a while now. It's called pricing risk.

Also, I don't see how the stimulus directly does much for this region..? Increasing unemployment and tax cuts for everyone are not specific to the dc region. Either way, I don't see a housing bottom for a while. I expect us to grind lower for a while, because the government is doing its damndest to prop up the economy and the sector.

Spencer

February 28, 2009 1:54 PM

Here is the link to the number of sales in the region.

http://novabubblefallout.blogspot.com/

the number of homes sold are up 47% in fairfax county. loudoun was up 32%

on mortgage rates, a loan for $418k is 2.5% more than a loan for $417k. that is a screwed up market by any definition. the historical average for the jumbo was .25%. the problem in the jumbo market right now is credit supply. it's the same reason why the investment bond market has been shut down off and on, and nobody would say the problem is 'pricing risk'

re: the outlook, there have been multiple stories in several newspapers and magazine about the dc market and how the outlook is more bullish than elsewhere in the country. the stimulus (and the obama gov't expansion) will absolutely filter through washington

again, i'm not claiming we are in for a period of rapid expansion. i'm only suggesting the market is stabilizing here relative to other places in the country. my guess is we are very close to the end of substantial price drops in this region

Guy

March 4, 2009 11:08 AM

Spencer,

Thanks for the numbers (too lazy to look for them). Those numbers do make things look a little more hopeful, but the bottom line fact of the matter is, it's still too early to tell. When calling a bottom, I much prefer to wait for a CONCRETE bottom (ok, I know that's completely relative) to be put in place, and then call a bottom. Otherwise, you look like any old schmuck who is calling a bottom every few months (NAR).

Mortgage rates are what they are because of RISK. $417k is the conforming rate, and thus fannie and freddie are there to lower the spread below that loan amount, which is why they're much more liquid (cheaper). The spread on jumbos is because of the higher risk. Wider spread = higher risk. Sure the "liquidity" is a problem, but they're obviously less liquid because they're more risky. It's not "screwed up" in my definition, that's the market, and that's what the market is pricing. Saying "the market is wrong" is a bit silly.

The commercial paper and securitization market is "shut down" for the very same reason. People are shying away from risk and going for the same bet (notice how treasuries are at an all time high?). That's THE definition of risk repricing. Only naive people think this is a "screwed up market" where the govt needs to step in and "fix things," but that's another discussion entirely..

With Obama lowering the interest deduction for "higher" wage earners, I expect that to be a small prick for the higher valued homes. Either way, I think DC should fare "better" than other parts of the country, but we'll see whether this is the "bottom" or not. Keep in mind we're sitting around all time lows for interest rates, and rising rates (it's a matter of when, not if) will stifle real estate appreciation. If you're going with a 30yr fixed, and plan to stay in your home for a while.. there are certainly some "decent" prices in some areas, from what I've seen.

Guy

March 9, 2009 12:11 PM

My previous response got lost in cyberspace so I'll make this one short..

A blip in sales does not mark a bottom. Period. I've said before that I expect the DC area to "outperform," but again, I wouldn't say we're at a bottom. In fact, I tend to find it VERY irritating/annoying when people call bottoms. Why? Because they're often WRONG (look at your last call, the NAR, every pundit calling the market over the last couple years calling a bottom OVER and OVER). It gets old REAL fast.

Turn off CNBC and watch a "real" news channel. This is EXACTLY what risk repricing is all about. The market is never "screwed up." It's the people looking at it that tend to be "screwed up." Let that swirl around in your head for a minute. Regarding mortgage rates.. Conforming mortgages are SUBSIDIZED by the government, hence they have a low rate (spread). Have you been paying attention to the debacle that freddie and fannie are? Since the government is subsidizing conforming rates (which is what's causing the jumbo loans to look "screwed up"), it makes the jumbo rates look high. See, the "screwed up" market is the conforming rates. They're priced too cheaply (low). So, to say a specific market is "screwed up," is simply ignorant.

I won't go on further, as this is clearly beyond the "scope" of this discussion. Spencer, how about you wait for what looks like a bottom for you, wait 6-12 months after that, and if your outlook hasn't change, then post about a bottom. Your last posts about a year ago calling a bottom were quite a bit off. :-)

Spencer

March 14, 2009 5:52 PM

absolutely i was wrong when i called the bottom in april '08 but i believe we would have hit bottom if we hadn't had the completely unpredictable blow-up which happened in sept '08. The metrics show now that we are in line with long-term affordability ratios and we are in a far better position here in washington than in other areas of the country.

not clear to me obama will prevail in the charity/mortgage int deduction proposal but in either case, i don't see a big impact

the big problem is spreads. government intervention has caused what i believe to be a screwed up market. by that, i absolutely believe there is nothing fundamental behind a mortgage rate being substantially more expensive if it is for $418k vs. 417. gov't intervention has caused a misallocation of pricing. this gap has created a perception that 'now is not a good time' if you are a non-conforming borrower because the gap is so wide. said another way, i actually believe our market would be healthier if the rates were closer, even if that meant conforming rates would be higher. people just get skiddish when they see such a massive gap

btw, i think there is nothing wrong with making asset price calls. that's what people do and have to do every day. the people that 'wait for the evidence' are the people who never beat the market. there is nothing wrong with making the calls and you either live by them or die by them

Guy

March 18, 2009 2:19 AM

"i believe we would have hit bottom if we hadn't had the completely unpredictable blow-up which happened in sept '08."

It seemed very much "predictable" in my mind, and to many of the folks who followed this thread for a few years. In fact, I don't think it's over, and to think such is a bit naive, as bubbles never end "nicely."

"i actually believe our market would be healthier if the rates were closer, even if that meant conforming rates would be higher. people just get skiddish when they see such a massive gap"

I agree with you on that. Unfortunately, our govt believes it knows best for everything and is meddling in markets more than it ever has.

"the people that 'wait for the evidence' are the people who never beat the market. there is nothing wrong with making the calls and you either live by them or die by them"

When I say "wait for evidence," I mean wait for more conclusive reasoning that a turn has taken place or that a turn is around the corner. "Evidence" is a very subject term. I see no such things with housing. I disagree with you as well. People who "wait for evidence" are the people that will tend to beat the market. Why? Because waiting for the turn and catching the "meat" of the move is what's important, not saying you called THE bottom. On the other hand, the majority of the "bottom callers" are often the ones that lose their shirts, because they're often far too early.

Also, bubbles NEVER pop and end nicely.. so I think your logic that the downturn is over is quite a bit early. I see rates heading higher, which will put more pressure on real estate prices. Either way, best of luck!

Jewel9229

April 1, 2009 12:13 AM

I've been following this thread for a few years now, some very interesting stuff ;-) This is my first post...

At 28, I'm readying to make my first home purchase this summer. I have a credit score north of 760 and 10% down (hopefully that will be enough). I am looking to buy a townhouse or condo within walking distance of the orange line in North Arlington.

Unfortunately, prices haven't seemed to go down much in this area - they've more or less "plateaued".

Everyone says don't time the market, but any thoughts on this? I pay 2K/month in rent and am sick of throwing away money. Rates are low, and honestly I don't *think* N. Arlington prices will go down.

Rob

April 21, 2009 1:58 PM

"Everyone says don't time the market, but any thoughts on this? I pay 2K/month in rent and am sick of throwing away money. Rates are low, and honestly I don't *think* N. Arlington prices will go down."

Im in the same boat as you. The problem is $2K in rent is about half of what you would pay for a mortgage and HOA fees.

If you dont think prices will go down, then buy...but if you have been checking actual sales, they are dismal.

Casper

May 2, 2009 7:27 AM

Jewel9229:

I'm sort of the same situation. I'm 31, make a very good salary, would love to buy a SFH in Arlington/McLean/Vienna, and still find everything to be ridiculously overpriced here. I've been following the housing bubble on the blogs since 2005, and I will sit on the fence some more. $750,000 for a crappy colonial or split-level in Vienna? You got to be kidding me. I just renewed my lease for another year, and I'll gladly keep paying $2500/month in rent (on a place that I like) rather than a $7000/month PITI (on a place that I'm not too fond of)!

My advice: Keep renting! Don't believe the hype that paying rent is 'throwing money away'!

Christine

May 21, 2009 4:24 PM

Jewel/Rob/Casper - I am in the same boat as all of you (why is it we are all looking in the Arlington/close in area?) and agree with your comments.

Ive been lurking on the bubble blogs and was blown away recently when some census data was turned up by the blogger "GT" on the income growth and demographic change in the Arlington/close in area.

It looks like median income grew more here than anywhere else in the country (2000-2007). Also, after years of going down, the census suggests "non-hispanic whites" (translation upper income dinks) are moving in at record rates - strongest growth seen in 140 years!

I think thats why we are all as frustrated as we are in our home search. Home prices cannot exceed fundamentals for long, but it looks like the "fundamentals" in the areas we are looking got awful strong recently.

I still hold out some hope for lower prices. However, Im not nearly as optimistic as I was 2 years ago. Sigh...

Guy

June 8, 2009 12:02 PM

Patience guys.. I'm moving very close to the city at the end of the month (looked at some places to buy), and thought prices were/are outrageous. If I found a "reasonably" priced place, I would've pulled the trigger, but prices still seem insane closer in ($400k+ for a 2bd/ba condo is nuts). I will happily keep renting until the time comes where I think prices are "reasonable."

Some other things to keep in mind.. My big concern has been the bond market (if you've been reading my posts at all). Well, take a look at T bonds (treasuries), as well as GSE paper which correspond with mortgage rates. Notice rates are on the rise now, with ZERO sign of turning around. What does this mean? I believe it means home prices WILL have to go down. So, folks with cash (or who can put a big downpayment), will be at a bigger advantage. We'll see if I'm in fact correct over the coming years, but I expect home prices to come down in relation to interest rates. Whether it's a direct 1:1 relationship I don't know, but given the large amount of leverage/debt in the system, rising rates WILL undoubtedly have a big negative impact on home values.

As a final note, I do expect closer in areas to fare better than further out suburbs.. but the disparity looks too large imo, and must contract (think of it like very wide credit spreads). What we have now is the government keeping the DC metro area's housing market propped up (mainly the closer in areas) because of all the jobs. How long it can continue for, who knows. Like all asset classes though, the best assets are often the last to really get hit, as the people with money can hold out. Eventually though, the good get dragged down (or the bad get dragged up). I tend to think it's the former.

Now, in further out suburbs, you can certainly make the argument that "now is an ok time to buy." Seeing a condo in Manassas sell for $420k in '05 sell for $170k a couple months ago, proly makes the condo now a decent price (as rent to own ratio perhaps favors buying), but that's up to each individual. Loudoun county also has some half decent priced places. Closer in areas, I just can't make the case for buying. Best of luck to all!

Disclosure: I'm a renter and perhaps I'm just "talking my book," but my decision to wait thus far has saved me a fortune, and it's a lot easier to wait now as I'm now playing with the "house's money," plus I can sleep easy at night if I or my wife lose our job as we don't have a house payment to worry about.

David

August 7, 2009 11:37 AM

Time for a bit of a "postscript" on this whole thing.

After 3 straignt years of decline, case shiller is showing rising prices in DC, even on a seasonally adjusted basis.

Also, median prices are still down outside the beltway, but after a more than a year of being down (albeit mildly) in Arlington, they have been up YOY for the last 2 months.

So far at least, the stong areas have continued to hold, possibly even the first to recover. Will they show any more weakness as we transition from "freefall" to "bottoming" phase? We shall see!

Guy

August 10, 2009 4:33 PM

David,

I think it's interesting to note that we're right now in the middle of a "grand experiment" with our economy/financial system. To me, it's pretty easy to understand how/why housing has "stabilized" for now, but the question of course is what will happen in the future. We have the government printing money, running huge deficits, and throwing money at EVERYTHING now. This is largely keeping the economy afloat, and has prevented further declines. Free money will always "stimulate" the economy, but the question is whether it will be a shot of pain killers or an actual cure. I tend to believe the former, but it's sure hard to say. The Fed has been printing trillions and throwing it around to push asset values up. It's a new world we live in for sure. How it will end up is a craps game at this point.

One thing to keep in mind though is that "there's no such thing as a free lunch." For all the printing and deficits we're running now, they will surely have negative consequences in the future. The other dangerous thing about this, is that we've become "bailout nation" with anyone that comes across hard times EXPECTING a handout from the government. Independence and individual responsibility seem to have become a thing of the past. Not fundamentals robust economies are built on..

Bubba

September 9, 2009 10:07 PM

Hey Dean (and everyone else). Long time no see.

After spending way too much time on this thread back a few years ago, I've abandoned it over the last year or so, for various reasons. I'd just like to ask Dean whether he'll write an article (or even, god forbid, a book) that tracks the peak and fall of the housing bubble around the posts on this thread. And whether he can give any sort of BIG PICTURE summation that describes where we started, where we went, and where we ended up.

Reading back through this thread - and it's predecessor - I find myself encountering all sorts of old friends. But alas, we all approached the issue with particular viewpoints. Perhaps Dean, as the titular non-partisan head of this thread, could write something that yields closure for all of the participants. Or have we not reached that point? Dean?

Harry

October 1, 2009 2:16 PM

A note to "Guy" while you did a commendable job in calling out Spencer as you did, in retrospect you held on to the "core areas cannot outperform the rest of the area THIS much" far far too long.

You like so many others thought that if we simply wait long enough these areas too would take a big fall as did their exurban counterparts, in large part because the spread between core and exurban had gotten too large. In economics parlance, the substitution effect would lessen the disparity.

Turns out, at least for the northern virginia area you were flat out wrong in this prediction. As of this writing each of Arlington, Alexandria, Fairfax, Loudoun & Prince William are seeing price increases on a YOY basis.

Most interesting was the order they emerged and the severity of the hit they took. Arlington (coined by many as "Immunnington" was the least hit of all areas in the downturn. Turns out it was the first one to post a YOY increas in prices. 2nd least hit Alexandria (Immundria) was second to post YOY gains. The turnaround in these least hit areas was followed by turnarounds in harder hit Fairfax, and harder hit Loudoun. Finally, the hardest hit of all, PWC was the last to post its YOY gains.

Interestingly, case shiller (which also reports prices going up 4 months in a row) said along time ago this is how it would happen. Their thesis all along was the close in areas would suffer least and be the first to emerge. Turns out they were right.

It is true, a second hit could be taken - the experiment could fail, and prices go down again. And if they do - want to know what happens. Again, the core areas would take the least hit, and the far out areas the worst.

And thats really the point here. You had some good calls in terms of spencer, and his permabullishness, but you were so quick to bristle when he and others pointed out "some areas arent doing so bad". At that point you talked the doomish book of "it takes longer to hit" "its not different anywhere", "they will see theirs" etc. etc. On this point, you got your head handed to you - big time...

Guy

October 5, 2009 11:58 AM

Harry,

I appreciate the armchair quarterback analysis, but the game isn't over yet. In fact, I'd guess we aren't even at halftime yet. lol

A "YOY" increase doesn't mean a whole lot, I hate to break it to you. Notice how the government is looking to INCREASE the housing credit/subsidy now to $15k, and the housing market is barely staying flat? It should be no surprise to anyone that the housing market has "stabilized" temporarily, since the government is pouring trillions of dollars into housing. Let's count all the programs.. Fed purchasing t bonds/MBS's (printing money to keep rates lower), $8k tax credit, and FHA loans with 3% downpayments (the loan loss numbers show this is a taxpayer subsidy).

Again, don't draw a conclusion before the game is even half over. You had temporary increases in home prices thanks to SEASONAL factors and a hefty tax credit (take a look when the tax credit was implemented). If it was left to expire (which it doesn't look like it is), you'd see a similar effect to the Cash for clunkers I'd recon. Instead, they realize that housing is stalling out for another fall in prices, so they're throwing more money at it. It's merely kicking the can/decline down the road. So please spare me the "got your head handed to you" nonsense. A small "bounce"/consolidation pattern does not mean the trend (down) has changed.

Harry

October 15, 2009 10:43 AM

Guy - thanks for reitirating what I said earlier, but yet avoiding my main point:

"It is true, a second hit could be taken - the experiment could fail, and prices go down again. And if they do - want to know what happens? Again, the core areas would take the least hit, and the far out areas the worst."

Are you saying that if the 8K credit expires, and FHA goes belly up, the inner areas will now, finally, get crushed and yet the outer areas will somehow levitate, not losing value?

Thats the point I was getting at. Its obvious now that the inner areas are going to do better than the outer areas no matter what monkeywrench the govt throws into the works. Nothing you said in any way refutes that.

Spencer

October 17, 2009 11:31 PM

Guy,

Your argument actually favors home price appreciation because everything you are talking about leads to inflation. I agree that inflation is inevitable, the question is whether higher rates (also inevitable) or inflation will rule the day in housing. I also agree the government intervention into the housing market is unhealthy and unsustainable

Your arguments also ignore DC-specific issues. it still has the lowest unemployment and several of the faster growing counties. It is clear that government will get substantially larger and DC will benefit

also take a look at the actual index value for dc on the schiller report and you'll see the DC number is the highest, ie we have retreated the least of any market since 2000

as i said a long time ago, clearly the sept 08 crisis impacted the timing of the stabilization of home prices. you have implied the crisis was predictable - i presume you got very rich on this as one could have made a lot of money knowing this type of information in advance

Guy

October 20, 2009 2:14 PM

Harry,

You've set up a straw man, that's why I didn't address it (perhaps you didn't see my comment from a while ago?). I never said all areas would be affected equally, in fact, in my quote from May 22 of last year, I said the opposite: "I understand closer in neighborhoods won't fall "as much," but they're still overvalued, and thus I'm expecting another 20% to the downside."

My main point was that the spread is/was unsustainable, not that there shouldn't be different levels of appreciation/depreciation among areas of dc.

Spencer,
Yes and no.. That's the big question these days, inflation or deflation. Despite all the printing going on at the fed and huge deficits, PPI actually came up negative today. That's quite "strange" to say the least, for the inflation folks. Now, this trend could most certainly change (oil has been steadily rising (just banged $80/barrel)), but we'll have to see. Either way, it's far too simplistic a view to say home prices will go up. Commodity prices could rise, but if credit costs rise sharply as well (higher interest rates) without wages rising, I don't believe home prices can/will rise. Best case, I expect a stagnation/sideways movement for the next 5+ years (which I think is less likely). Worst case, I see more downside.

No question the DC area is holding up well relative to the rest of the country (thanks to the gov). We'll see how well it pans out in the future. As I've said before, it could very well hold up substantially better relative to the rest of the country.

"you have implied the crisis was predictable - i presume you got very rich on this as one could have made a lot of money knowing this type of information in advance"

If only it were that simple Spencer (and I had a lot more capital and conviction to place bets (I'm <30yrs old)). This common misconception by many folks is pretty laughable imo. Since a bubble is the result of pure irrationality, it can and often does continue for longer than anyone can predict. So, knowing that something is going to happen without being able to pin down the exact timing makes it very difficult to make large sums of money off of. On top of that, you have government interference that muddles the picture even more (current Fed purchases, bailouts, stimulus, deficits, tax credits/etc). If only it were that easy..

John

November 3, 2009 2:58 PM

Wow, this discussion has been going on for a year and a half. The housing market is going up and down. Recently I've talked to a couple of investors that expect a downturn over the next 6 to 9 months.

John
http://www.manassashousedeals.com

Sam

November 20, 2009 12:28 PM

Interesting Thread you've started Mr. Foust. Its a testament to what a strong point you've made, that this thread still has posters as recent as Nov 2009!

Here's my two cents.....
WashingtonDC MSA has unique market drivers. These drivers exist nowhere else in the USA.
1) Its exclusively driven by the needs, which are many, of the Federal Govt Officials and their Court Attendents and Beauraucracy.

2)It's well known around DC that "when the nation's economy is good, its good for DC....and when the nation's economy is bad, its also good for DC." The demand for Govt Services NEVER decreases.....thus the demand for govt workers never decreases, and govt workers demands for housing never decreases.

3) Every election year churns the DC real estate market. Excepting the last 20 years or so, our elected officials sometimes had to pack their bags and leave town. Even given the permernence of elected officials, duties get shifted, staff re-aligned, lobbyists get bonuses....on and on.

The cold hard truth of the DC real estate matter is---
If your house's value is going up at a slower rate than it did in 2008, you need to consider just how bad it's getting on real estate outside the DC Metro area.

Weber

January 11, 2010 12:20 PM

Hey "Guy" New MRIS results are out. Median prices in Arlington have hit a new all time peak. Oh how sad for you!!!

Guy

January 14, 2010 5:30 PM

Weber,

Why would I be sad? Spare me the childish response. Re-read my posts and respond like an adult if you can. I'm not surprised in the least that prices have "stabilized" for the time being (which I said about 6 months ago as well). Notice, NOTHING fundamentally has changed since then.. Government running huge deficits, printing money, pouring money into housing, etc. etc. This is NOT a sustainable trend. Of course, it can continue for a while, which is why things are looking on the "up and up."

I will say it's still far too early to say what the ultimate outcome will be, but the government has chosen inflation up until now. This bodes well for those buying a house now. However, I do find it funny how folks are faulting me for not factoring in the government pouring trillions into the economy and consequently seeing a (temporary) stabilization in housing. If you were able to predict the government printing trillions to stem the bleeding in housing, congrats to you. However, don't delude yourself into thinking that it was due to fundamental reasons (or any reason presented by anyone else in this thread).

As always, best of luck to everyone with your decisions.

Weber

March 1, 2010 4:44 PM

MRIS annual stats are out. Thanks to the horiffic beginning of the year numbers, most county median prices are generally down 3-5% YOY.

The only exception is Arlington which posted a very slight YOY gain.

I cant help but think back to the hundreds upon hundreds of posts that predicted imminent doom for the Arlington Market. It never happened.

Now that market is looking back at these doomish posts and simply laughs, and laughs and laughs...

guy

March 2, 2010 3:57 PM

Weber,

Please try and come up with some ANALYSIS, not merely citing numbers. Any monkey can read and cite numbers, but what's important is WHY. Prices have stabilized due to the home buyer tax credit and all the other housing subsidies. These won't last forever. No one said housing has to turn down RIGHT NOW, just that it will head lower. This is a longer term trend, and thus any pathetic slight upticks are largely meaningless (although the people who don't use their noggin will incorrectly view a short term trend as a long term trend). It seems to be that some people's analytical skills are merely "lacking" more than anything else.

PS: This original thread wasn't just about Arlington. There are plenty of local counties that are substantially down still from the peak. Funny how you don't mention those.. ;-)

weber

March 20, 2010 3:04 PM

Guy said...

"I wonder how cheap homes will be in the DC metro area in a few years.. Anyone care to make a guesstimate for the hell of it? I think we got an easy 20-30% lower to go."

November 11, 2008 04:41 PM


BWAHAHAHAHAHAHAHAHA!!!!!!!

Guy

March 23, 2010 1:12 PM

Weber,

It's been a little over a year since I said that (if you can read, I said few years lol). Give it time son.

Theresa

April 12, 2010 12:20 PM

Just a general comment to all those out there in the RE Bubble cyberspace.

An Arlington house I was looking to buy in early 2007 was selling for 545K. This blog told me this home price was (much) too high, and would fall "significantly". It sold for 545K.

In early 2010, the house was again for sale, this time for 605K. I toured the house and confirmed there were no improvements in the interim. The house sold last weekend for 608K.

In the intervening 3 years, I have paid nearly $75,000 in rent. Thus from the bottom of my heart, I would like to say to all those who told me not to buy in 2007 because house prices would fall "significantly", please go f*ck yourselves. Thank you.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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