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Saturday, April 5, 2008
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41 comments:
Hi all,
Today's Post had a story about predicting future prices. Here's a link to a blog maintained by a guy named Keith Gibbons, who focuses on the district only and maintains a database of 67000 homes:
http://www.dchousingprices.com/.
I like these two houses in Vienna: 1920 & 1923 Labrador (FX6713145 & FX6647828). According to past sales (back in the 1970s) and tax assessments, one is slightly nicer than the other. However, the cheaper of the two is priced below its assessment, whereas the more expensive is priced above it's assessment. The result is nearly a $100k difference in asking price, or 15% from the cheaper to the more expensive.
1920 Labrador - $635k - FX6713145
1923 Labrador - $728k - FX6647828
Who knows, maybe one is a dump and the other is pristine. Still, 15% is a big difference, especially if both end up being in similar conditions.
Seems like a nice place, Novawatcher!
Remember when the difference between the price of two similar houses in the same neighborhood was only a few thousand?
In the neighborhood I'm looking in I've seen price differences of over $100k for houses that aren't all that different. They seem to actually sell when prices fall below $400k. I expect prices will drop far below that as the the surrounding areas decline. There will be any "islands" that are immune, it'll just take longer in some places than others.
I went to the open house last weekend for 1923 Labrador Lane. It seems to be in very good shape. The downside for me, as a parent of three, is that the backyard is very small with a steep slope and almost no lawn--essentially unusable as a play space.
Given the few recent comps in the area, I don't think the house is worth $51K above the assessment.
Based upon my assessment, I don't think it's (1923) worth more than $470k (and that's pushing it), but that's another story.
Wow, Novawatcher, that's a pretty lowball value you're offering! Since I'm interested in buying in or near Vienna, I'd love to understand better how you're arriving at that figure. And anyway, I wonder if it's all academic, if none but the most desperate sellers would accept that sort of offer right now. Over the past few months, homes in the Vienna zip codes have been selling for about 90% to 94% of list price on average.
I'm not offering -- I'm watching and waiting.
How did I come up with that figure? Two simple methods:
(1) What were places in that neighborhood going for the last time underwriting and valuations were normal (1999 isn't a bad year). Extrapolate forward using income (and adjusting for interest rates for 30-yr fixed if you are so inclined).
(2) Based on rents.
Going back to #1, a similarly assessed place on the same street (2006 Labrador) sold for $419k in 2001, and 2001 was considered overheated. Now extrapolate forward -- interest rates are about 1% less than they were in 2001.
miles: you didn't happen to look at any other places last weekend? I'm specifically thinking of one in the Oak Hill/ Folkstone area.
novawatcher said:
"(1) What were places in that neighborhood going for the last time underwriting and valuations were normal (1999 isn't a bad year). Extrapolate forward using income (and adjusting for interest rates for 30-yr fixed if you are so inclined)."
Yep, nothing's changed in the last near decade .... nothing ... just inflate for inflation and deflate for lower interest rates. Never mind the increase in real value the DC area has experienced or the price pressure from the increase in population. Pretend that none of that counts ...
Lance, you may want to contact the NYT and the quoted economist to let them know that they have it all wrong . . .
“The collapse will affect other markets, like New York, Boston and D.C.,” said Dean Baker, co-director of the Center for Economic and Policy Research. “Suburban areas near those cities are already seeing prices plunge.”
http://tinyurl.com/5blwha
Speaking of Dean Baker, he just wrote a must read article that compares the cost of renting a two-bedroom place in 20 major cities with the cost of ownership. [Table 1 in the article]. He concludes that in some areas, including DC, people have been devoting too much of their income towards owning a place rather than renting for much cheaper. Consequently, those who stretched to own will have a more difficult time investing for retirement, paying for health care, or paying for child care. He concludes that the government's efforts to keep troubled borrowers owning in such "bubble" areas is counterproductive; it would be better if the government made it easier to transition from owning to renting, which would allow prices to come down to more reasonable levels. This echoes what Leroy, among others, has been saying here for months.
Figure 2 in the article reflects Baker's predictions regarding the amount of equity that will be lost in certain cities over the next four years. He predicts a loss of approximately $75K for the DC area. Baker assumes that rent will increase 3% annually and that prices will fall to 15X annual rent. Where Baker's data is subject to criticism, however, is in the comparison of rental costs to ownership costs. It looks a bit apples to oranges insofar as the rent, gleaned from HUD data, appears too low relative to the quality of the housing used for the "ownership cost" figures.
Link to article: http://tinyurl.com/683p5h
Consequently, those who stretched to own will have a more difficult time investing for retirement, paying for health care, or paying for child care. He concludes that the government's efforts to keep troubled borrowers owning in such "bubble" areas is counterproductive;
Yep. To think, J6P really won't understand how bad the bubble is until about August. Maybe later. There is no recovery in 2008. None in 2009.
There is enough surplus housing stock in DC to last until 2011. Trying to keep the prices high will only extend the slide.
With spring worker demand to leave bubble areas is growing. They have the urge to buy but won't even consider looking where it was pricey two years ago. 'Real estate always goes up' is in the mindset. J6P seems to act on news that is about two years old... so the companies have no choice but to fight the last war.
There are so many engineering/IT jobs in low cost of living areas that they're simply giving notice and heading out. The ones who don't want to move are only beginning to realize promotions are being exported to lower cost areas...
We, as a company, are trying to get out in front of the wave. We moved 500 IT engineers out of DC so far this year and not one MSM report. :) Nationally, I can find proof of about seven thousand among the big four that have been moved to low cost areas without much media noise for the first few months of 2008!
Now, considering that the big four aerospace companies employ 100,000+ each, that's almost noise. Or is it...
Most of the moves in 2008 will occur during the summer school break. That's typical of any high skill work force (they like their kids to develop skills). Coworkers returning from business trips are reporting on the buildings that are being built for the 2009 moves. This is like the exodus from California in 1993 and 1994.
The housing bulls will make nasty noise. But fate has already rolled the dice. Big ships commit to turning long before they move. It will be interesting with all the REIC and retail job losses too.
Got Popcorn?
Neil
I just wonder who is buying/renting all that new Northern VA Office Space. I am hearing that rates are already heading down with landlords making alot of free renovations to keep customers in place. This could be the next domino to fall.
I think terminator has a good idea. I think if buyers could simply walk away without destroying their credit or facing a lawsuit ( like they can in California ), the bubble would burst a lot faster and the rebuilding would occur.
Lets face it, there are still a lot of people living in homes that they cant really afford. The best solution for everyone is for them to leave the home, and somebody who can afford it will move in.
Um, "IT engineers" are not the inner DC economy's sweet spot...I've gone to college and law school here and worked here for 15 years, never living outside of the beltway, and I barely know what that is...maybe it's a Fairfax/Loudon thing.
Neil, you just don't understand.
Everyone wants to live here. All of them...
Whatever you heard about people wanting to leave the area must have been from losers who couldn't cut it in the big city!
Seriously though, I am seeing the same thing among the younger people I know in the area. There are many places that offer a much higher quality of life than DC with a much lower cost of living.
The younger crowd is becoming aware how they could live better on two thirds of their salary in many other cities and don't see why they are spending their time in DC.
We aren't talking about moving out to small towns either, places like Houston, Dallas, Atlanta, etc are all far larger cities with far more jobs than DC but have retained a relatively low cost of living relative to this area.(There is a reason those are the fastest growing cities in the country.)
I am sure one of our local real estate pumpers will explain to us how we have it all wrong and that really everyone grows up wanting to move to DC and only the elite few can cut it once they get here... but that just isn't the case. The younger generation isn't stupid, they know enough to look at the total package.
"Um, "IT engineers" are not the inner DC economy's sweet spot...I've gone to college and law school here and worked here for 15 years, never living outside of the beltway, and I barely know what that is...maybe it's a Fairfax/Loudon thing."
lol, well at least you have some pride in your ignorance.
Want to know something funny?
Many people on this blog find themselves thinking something similar:
"I have lived in this area for ___ years and only find myself going into the District when friends visit and want to play tourist, who gives a ____ about the orange line?"
"I think terminator has a good idea. I think if buyers could simply walk away without destroying their credit or facing a lawsuit ( like they can in California ), the bubble would burst a lot faster and the rebuilding would occur.
Lets face it, there are still a lot of people living in homes that they cant really afford. The best solution for everyone is for them to leave the home, and somebody who can afford it will move in."
I think there is some validity to that but it will never happen. The banks would take the hit in such a strategy and people's emotional attachment to their houses "value" will prevent them from supporting such a strategy.
Remember, affordable housing is always somewhere else. YOUR neighborhood you want priced so high you could never dream of buying there yourself.
The people I really feel sorry for are the ones that are underwater and can't continue their career because they can't move. Many jobs today require mobility and now there are countless people who are tied down.
Neil,
You're just proving my point that the DC area is changing rapidly. Second-tier government contractors are getting pushed out to second-tier cities ... now that the DC area is moving into its own as a truly first class international city.
How many engineers does your company have working and living in mid-town Manhattan ... or the other 4 boroughs for that matter? Relatively few I would guess.
Lance, typically a shill, has a point in his Manhattan reference, which is what I was (inartfully) getting at. Though of course that doesn't say anything good about the future of the outer burbs.
fd said:
"Though of course that doesn't say anything good about the future of the outer burbs."
I disagree. Even international cities have a need for afordable worker housing. The square footage of many of these places is greater than the square footage of many of the older apartment buildings in the District. It's just a matter of getting the zoning in line with the demand out there.
Seriously though, I am seeing the same thing among the younger people I know in the area. There are many places that offer a much higher quality of life than DC with a much lower cost of living.
Leroy, We seem to have passed the inflection point.
Lance, we pulled out of Manhattan a long time ago. Funny you should mention them.
But here is the catch, DC is denpendent upon jobs that pay WORSE than the one's leaving. Think about the implications.
Again, I've seen some of the nicest and wealthiest upper middle class neighborhoods in the USA drop 40% in nominal terms.
DC has a surplus of housing in the interior. As I've already noted, we've already had to buy new buildings and sell the current ones for the 2009 moves.
Oh... and quite a few of the senior managers and such live in Alexandria will have to follow the job flow. With the Pentagon having issues bringing the Junior officers into DC, the higher paying jobs are having to follow where the purchase decisions are now made.
Got Popcorn?
Neil
"Even international cities have a need for afordable worker housing."
Don't be ridiculous lance, international cities have no constraints whatsoever.
Once the coveted "international city" title is bestowed upon a city by a pan-globular node expert the city is no longer subject to conventional economic theory. From that point forward prices will move up sharply, forever.
This phenomena has been seen in all previous international cities, none of which have ever experienced real estate bubbles or busts.
...
"Leroy, We seem to have passed the inflection point. "
I don't know that inflection point is really the right word, at least in my mind that implies a reversal and I don't think that will happen. I don't think this area will stop growing in the foreseeable future but I suspect the easy years are over.
DC's growth over the last twenty years was due in large part to the fact that it was a low cost third tier US city that had some pretty decent infrastructure.
Now that it has grown into a bloated second tier city with a high cost of living many of the conditions that allowed it to grow as quickly as it did have disappeared. Taxes are rising, traffic is terrible, and the local governments have been ineffective in dealing with the growth.
There is some truth to the "new paradigm" that lance has apparently overheard someone talking about, but it isn't mega-cities. Mega-cities were needed in a day when long distance phone calls cost something and the only way to exchange a large volume of information was by delivering it on a physical medium.
Dynamic companies today are realizing that there is no need to be located in places like NYC, LA, or Chicago... they can instead set up their operations in smaller cities with a higher quality of life where they can attract and retain the best and the brightest.
In lance's dream world all of the world's most competitive companies pass over the top tier cities, and pick DC out of a gaggle of second tier US cities and elevate DC to some kind of global mega-city. In actuality these companies are now skipping right past DC and looking at places like Colorado Springs, Austin, and Charlotte.
DC isn't going anywhere, but the comparisons to Manhattan are silly at best.
Leroy said:
"Dynamic companies today are realizing that there is no need to be located in places like NYC, LA, or Chicago... they can instead set up their operations in smaller cities with a higher quality of life where they can attract and retain the best and the brightest."
Except that in today's world, the best and the brightest come from around the world and not just from around the country (especially so for "the business of Washington" as a world capital)... And not every culture places having a 3 car garage and a lawn to mow above having easy access to culture, good food, and most especially other like-minded people.
Leroy also said:
"We aren't talking about moving out to small towns either, places like Houston, Dallas, Atlanta, etc are all far larger cities with far more jobs than DC but have retained a relatively low cost of living relative to this area.
As nice as these cities are, if you think they can compare to DC in any meaningful way, then you really don't understand why they aren't international cities and DC is. Hint: Boston and San Francisco would have been better substitutes ... except that they're both more expensive to live in than DC.
"Except that in today's world, the best and the brightest come from around the world and not just from around the country (especially so for "the business of Washington" as a world capital)..."
heh, it is always amusing watching you try to weave your fantasies.
Lance, DC is not drawing the best and brightest from around the world. The only thing DC leads the nation in is government, bureaucracy, and government contracting.
This is just another variation of the "its different here" fantasy that similarly desperate real estate pumpers across the country have turned to. "Don't worry, a wave of highly paid foreigners will move here and buy up everything..."
"As nice as these cities are, if you think they can compare to DC in any meaningful way, then you really don't understand why they aren't international cities and DC is. Hint: Boston and San Francisco would have been better substitutes ... except that they're both more expensive to live in than DC."
Compare to DC in any meaningful way?
Why don't you at least pretend to be an honest observer. You think you can just dismiss three of the fastest growing large US cities as unable to compare to DC in "any way?"
Lance every one of those cities dwarfs DC in the role they play in the national and international economy. Dream all you want, but buzz words are not an argument.
What I think would be amusing would be to ask the citizens of San Francisco, Chicago, Dallas, NYC, Boston, Houston and Atlanta to list the top 5 "international cities" in America. Wanna guess how often DC would land on that list? If you don't know how DC is viewed outside your own little world you need to get out and travel some.
Want to make it real amusing? Toss in Shanghai, Tokyo, London, Paris, Frankfurt(why not Berlin?), and ask THEM to rank the world's leading "international cities."
The first tier is clear, NYC, LA, and Chicago.
The second tier could be Dallas, Houston, Atlanta and perhaps Seattle. All of which are very large very fast growing cities with a ton of high tech and corporate activity.
If DC were to be elevated to second tier you would have to bring several other cities with it resulting in a second tier of at least 6-8 cities.
Lance . . . as I have lived/worked in both Atlanta and DC, I can unequivocally states from my perspective Atlanta is a much more "international" city than DC.
The only edge that DC holds is the # of fed. gov. job with contractors and lobbyist to go along with it.
My goodness Atlanta has the busiest airport in the world! As far as the young single crowd . . .multiple magazines have rated Atlanta as the #1 place for professional singles. Atlanta is a more professional, modern city, comparing DC w/ Atlanta is night and day . . . sorry DC doesn't hold a candle to Atlanta. If you think DC is a more international city than Atlanta, you haven't traveled much.
I second what GTE said: DC doesn't hold a candle to Atlanta.
Top 10 - The Most Visited US Cities in 2007
http://tinyurl.com/6av2b4
What? Houston and Atlanta and Dallas didn't make the list!?!?!
Someone ought to tell the international crowd what they're missing! ...
From the New York Times:
Atlanta: Scenes Beyond The Mall
"When boosters talk of Atlanta's becoming an international city, they are usually thinking of Japanese trade missions or branch offices of European pharmaceutical companies, but without much fanfare, Buford Highway is as international as Atlanta gets.
A prime slice of the area is the Northwoods Plaza shopping center in the 5000 block of Buford at Shallowford Road. Its shops include a Vietnamese hair salon and a Vietnamese formal wear shop, Vietnamese and Mexican video stores, a ginseng and herb shop and an herbal clinic. For old time's sake, there's also a Pizza Hut and a gun shop.
The highlight is Bien Thuy, a sublime, modestly priced Vietnamese restaurant -- one of the best bargains in Atlanta -- with expertly prepared dishes such as hu tieu (glass noodle soup with seafood). As at most places in the area, its customers are often working-class people from the neighborhood.
A few doors down are two other terrific restaurants, Little Szechuan and El Pastor. Little Szechuan is regarded as one of the better Chinese restaurants in Atlanta with specialties like eggplant with garlic sauce or stir-fried Szechuan string beans. El Pastor is more typical than outstanding. It is a modest Mexico City style eatery popular with working-class Mexican immigrants where the jukebox tends toward Los Tigres del Norte rather than something more mainstream like Selena. Dishes include bistec a la Mexicana (Mexican-style steak) and sincronizada (flour tortillas with ham and Mexican cheese). Like most places on the highway it is inexpensive.
tinyurl.com/6dalnn
"What? Houston and Atlanta and Dallas didn't make the list!?!?!
Someone ought to tell the international crowd what they're missing! ..."
So let me get this straight... you are defining an "international city" as a city with a strong tourism industry?
Lets see, according to your acticle, DC is 8th in the US behind places like Las Vegas, Orlando, Miami, and Honolulu.
Hey, clearly there can't be a real estate bubble in any of THOSE cities because they are all even more "international" than DC!
Lance, Atlanta has over 1800 companies with foreign headquarters there. I couldn't find a stat for DC . . .if you show me DC has more foreign headquarters, I will relent.
In addition, in the US
http://www.inc.com/magazine
/20040301/top25_pagen_2.html.
Atlanta #1 for business in the US, Southern Maryland #10, DC #13.
DC is a wonderful place to visit, there are a lot of things to see and do, it has a lot of history-lots of tourism, but tourism doesn't make an international city.
gte said:
"Lance, Atlanta has over 1800 companies with foreign headquarters there."
???
Do you mean US subsidiaries of foreign companies? Or do you mean 1800 "international" companies headquartered there?
Leroy asked:
"So let me get this straight... you are defining an "international city" as a city with a strong tourism industry?"
Of course not. What I am pointing out is that of the 3 so-called "international" cities you cited, not a single one of them is on the "I like that city list" for foreigners. And why do you suppose that is?
Does it really matter?
The fact is that your whole argument that DC is some kind of super duper "international city" is just silly.
There are several cities in the US that are clearly above DC in that regard and at least another half dozen that are no worse than DC's equal.
Nobody is bashing DC, we just aren't bending over backwards to make up excuses for it like you do.
You have to realize that when you say things misinformed things like you do about other cities you do nothing to help yourself.
Leroy,
Sorry, but DC is different ... From its inception it's been being groomed to play an important part on the world stage. It's a part that neither Dallas, or Atlanta, or Charlotte can or ever will play. Ask the foreigners swarming to see this capital why they would rather not visit Dallas, or Atlanta, or Charlotte.
Perhaps we have a different understanding of important international cities. I wonder if you think Geneva is an important international city. After all, it's no larger than Washington (actually it's much smaller) and isn't the seat of any major companies.
"Of course not. What I am pointing out is that of the 3 so-called "international" cities you cited, not a single one of them is on the "I like that city list" for foreigners. And why do you suppose that is?"
Um, those are cities with large tourism industries.
Tourism is not the same thing as being an "international city."
You can't have it both ways, either Las Vegas, Orlando, Miami and Honolulu are more "international cities" than DC, along with others, or you just have a list of cities that draw tourists.
As I have said before, this whole thing is silly. DC is a second or third tier city on the international stage. It is an important center of government but that is about it.
I am glad you like DC, but don't insult our intelligence by saying that anyone that moves somewhere else to pursue what they want did so because they somehow weren't good enough for ultra competitive DC.
DC is just one of quite a few relatively large relatively successful cities in the US. It is no more competitive or "international" than any of a number of second tier cities.
This whole thing is rather childish in a "my dad can beat up your dad" kind of way.
"Sorry, but DC is different ... From its inception it's been being groomed to play an important part on the world stage. It's a part that neither Dallas, or Atlanta, or Charlotte can or ever will play. Ask the foreigners swarming to see this capital why they would rather not visit Dallas, or Atlanta, or Charlotte."
Again, that is just silly. You need to get out and travel some if you honestly believe that. Dallas doesn't envy DC, nor does Atlanta. They are two of the biggest and most successful cities in America today.
Yes, DC has a tourist industry. It has nice monuments and museums.
Still, Miami and Orlando both brought in double or more DC's "swarms" of international tourists while Las Vegas brought in almost 50% more.
Which is it? Are Orlando, Las Vegas and Miami all more "international cities" than DC, or do they just draw more tourists?
"Perhaps we have a different understanding of important international cities."
Clearly... you seem content to put DC at the top of the list because it sounds good to you while the rest of us are trying to follow some logical thought process.
"I wonder if you think Geneva is an important international city. After all, it's no larger than Washington (actually it's much smaller) and isn't the seat of any major companies."
I don't know where you got that bit of information but you are way off base.
Geneva isn't a huge city, but it has a very large financial and corporate footprint, in addition to its large presence in international politics. Go to Wikipedia and look it up...
You REALLY want to keep this discussion US centric. Geneva is probably second tier by European standards but is a FAR more international city than any in the US.
DC is a one trick pony. It is the seat of the US government.
Now ask yourself this, why did you say Geneva and not Berne?
I would assume by the quote that it was referring to foreign companies who wish to do business in the US. Meaning . . 1800+ foreign companies (i.e. companies based outside the US) have their US branch headquarters in Atlanta-I know this is hard for an IT tech . . .but please try to keep up.
In some ways I think Lance & Leroy are speaking about international cities in different ways. (Leroy focusing more on business, and Lance more on cultural aspects).
Here is a list that I always like and having been to over half of the Alpha/Beta & Gamma world cities, generally agree with.
You will note that D.C. has 6 of 12 indications of world city growth. Internationally, this is in the middle of the pack, but it is behind only New York, Chicago, Los Angeles and San Francisco in the U.S.
http://www.lboro.ac.uk/gawc/citylist.html
That strikes me as a reasonable list.
NYC, LA, and Chicago are clearly the top tier in the US.
San Francisco seems a little odd in 4th place to me personally but they obviously have a criteria they are applying.
DC is ranked as a third tier world city and tied with Dallas, Boston and Houston. Atlanta and Minneapolis are lower in the third tier. I can't really argue with any of that.
These sorts of things always get fuzzier the farther down the list you go. The first tier is clear. I don't think anyone but lance will argue with that. DC is at best a second tier "international city" but personally I agree with this list that it is in the third tier.
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