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Thursday, June 19, 2008
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17 comments:
This may have already been mentioned. At any rate, a couple of links to stories citing the George Mason study on the Washington area's soaring foreclosure rate:
Washington Post article,
Dallas Business Journal.
D.C. insiders suffer buyer’s market
By HELENA ANDREWS
Apparently, the housing crunch is nonpartisan. Washington insiders such as Ted Koppel, Ethel Kennedy and Ken Mehlman have priced to sell in a market that’s taken a noticeable downward swing.
“Prices have come down in general,” said Diana Hart, vice president of Tutt, Taylor and Rankin, the local affiliate of Sotheby’s International Realty. “Sellers are realistic, regardless of whether they’re members of Congress or media celebrities.”
“Nightline” anchor Koppel has dropped the price of his home in Potomac, Md., from $4.1 million to $1.95 million. The sticker price of Koppel’s 9,000-square-foot manse, which went on the market in 2005, was first slashed in August 2007, to $2.3 million.
Koppel’s price cut pales in comparison to that of Kennedy, widow of assassinated Sen. Robert F. Kennedy. Her home in McLean, Va., listed for $25 million in 2003, was reduced to $20 million and then to $16.5 million. The 10,524-square-foot estate is now listed by Washington Fine Properties for $12.5 million.
But Dewita Soeharjono, a broker with Weichert Realtors in Virginia, says not to feel too bad for homeowning politicos forced to reduce their asking prices.
“Actually, these guys bought the property way back then,” said Soeharjono. “[So] they actually made multiple times on their investment.”
The Kennedys purchased the property, known as Hickory Hill, from then-Sen. John F. Kennedy and his wife, Jackie, for $125,000 in 1957. So all is not totally lost — just millions in gravy.
“There’s not a premium on the price of the house because it was owned by a celebrity,” said Hart. Maybe there would be in locales like Los Angeles and New York, she added, but “not here.”
And consider the case of Sen. Kay Bailey Hutchison (R-Texas), who sold her property last summer for just under $1.1 million, about $74,000 below her asking price. She bought the place in August 2003 for $350,000, netting a $750,000 profit with her sale just four years later.
Another savvy seller is Republican strategist Mehlman, who originally listed his three-bedroom row house on Capitol Hill for $989,000, then lowered the price to $899,000. He bought the property in 1999 for just $312,500.
Former Treasury Secretary John Snow didn’t weather the market quite as well with his two-bedroom condo on Connecticut Avenue in Kalorama. Snow bought the place in March 2004 for $978,000, and the property, which was assessed at $928,000, was later listed for $999,500. It sold last October for $900,000 after sitting on the market for 156 days.
According to George Mason University’s Center for Regional Analysis, housing prices and sales in some areas in and around Washington will be a “mixed story” possibly until 2009. The average sales price of a home in the Washington metro area jumped only 1.5 percent in 2007, from $463,000 in 2006 to $470,000. In 2005, the average sales price increased by 21.8 percent from the previous year.
“Right now, foreclosures and decline in housing prices affects everyone,” Soeharjono said.
http://tinyurl.com/5ob6q4
House prices, sales transactions and home ownership rates increased more in the five years from 2000 to 2005 than in any period in the past three decades. Since 2005, however, the housing market has had large
declines in transactions, declines in prices, and mortgage foreclosure rates not seen in the past half century.
From the George Mason Report available at the Metropolitan Washington Council of Governments.
front page of the express this article made, nice.
what is this 'council of governments'? the title alone scares me.
here's something that was discussed here a few days ago..
gas prices influencing home purchases:
http://www.msnbc.msn.com/id/25248247/
Here is a link to the foreclosure study by etropolitan Washington Council of Governments (COG) and Freddie Mac. It opens a press release. The report pdf is 60 pages.
http://www.mwcog.org/news/press/detail.asp?NEWS_ID=312
There is a lot of material in this report. I was particularly interested in what it had to say about "potential hot spots" -- areas with few foreclosures. "In these potential hot spot neighborhoods, both average home prices and sales transactions continue to fall."
The report looks at a number of ares in Virginia, in particular, but because I live in Adams Morgan and this kind of analysis is new.
This analysis is based on trends elsewhere a more what-may-happen, not, what-is-most-certain to happen.
The report says for now foreclosure rate is low in Adams Morgan. As an aside, I see little evidence of people discussing concern about housing on neighborhood lists and blogs. Units are selling. But Adams Morgan is a very dense area and quite a few homes sold for about $400,000 (the start of the trouble zone) and DC did see a lot of subprime mortgages, although I don't know what the rate is.
Adams Morgan (District of Columbia)
Overall the District’s housing market has fared better than most of the Washington DC
region over the past year or so; however, there are a couple of neighborhoods that
stand out as potential hot spots for foreclosure and one of them is the Adams Morgan
neighborhood (zip code 20009.) Homes in this DC neighborhood range from $150,000
studio condominiums to million dollar plus embassy-style houses. Over the period
March 2007 through March 2008, the average price of homes in this neighborhood
dropped 24.1 percent, from $545,769 to $414,276. Over this period, prices in the
District of Columbia dropped by only 4.7 percent and condominium prices were down
only 3.7 percent. In Adams Morgan, the number of homes sold dropped from 90 in
March 2007 to 46 in March 2008.
In Adams Morgan, there were 12 homes in foreclosure in February 2008, up from nine
in December 2007 and four in October 2007.
Homes in the District of Columbia will continue to be in demand, as potential
homebuyers want to be close to jobs and transit. In the Adams Morgan neighborhood
demarcated by zip code 20009, however, there may be a potential for increase in
foreclosure activity among higher-end condominiums. Current foreclosures include
one-bedroom condominiums ranging in price from $400,000 to $700,000.
In addition to these specific neighborhoods mentioned above, neighborhoods in further
out jurisdictions may continue to be at risk of a rise in foreclosures as home prices fall
and inventories remain high. As gas prices continue to climb, there is going to be even
less demand for housing in the further out suburbs which will put even more downward
pressure on home values and more stress on homeowners at risk of missing mortgage
payments.
9 The other notable zip code where home prices and sales have dropped dramatically is the 20037 zip
code. This zip code is almost entirely the Watergate condominium complex and therefore constitutes a
special case. Prices were down 20.7 percent and sales were down 53.8 percent in this neighborhood
where the average condominium is priced around $450,000.
Good article Bas - thus far I have been dismissing gas prices as "the" reason for the bigger decline farther out. However the article touches on MANY the reasons cited for why people may be choosing to live in urban areas:
1. Reduce work commute 81%
2. Higher fuel costs 78%
3. Access to public transportation 54%
4. Saving on energy costs 42%
This got me thinking - My guess is that commute time has always been very high on the list of housing considerations, and until recently, fuel and energy costs were much less so.
However, now that gas and energy costs are high on the list of considerations - have we reached a tipping point? Speficially, are people saying - "if it was just the commute, I would stay (or choose to live out there), but since its the commute AND the gas AND the cost of heating and cooling the McMansion - its time to look elsewhere closer in.
Perhaps thats the better way to look at this. Generally, people lived in the exurbs despite the commute because all other things being equal, it was still "worth it".
However, once gas & energy prices became additional factors
to consider, everything else was not equal. For those at the margin, the consideration went from living out here is "worth it" to "not worth it".
More than 400 real estate industry players have been indicted since March -- including dozens over the last two days -- http://biz.yahoo.com/ap/080619/mortgage_fraud.html
More than 400 real estate industry players have been indicted since March -- including dozens over the last two days --
1200 more under investigation. This alone will keep the FBI busy for five years. ;)
Got Popcorn?
Neil
Bas: gas prices influencing home purchases
Good find.
It was pretty obvious. You just had to watch and listen to what people say.
crt, bas,
On the issue of buying close-in because of gas prices, a few points to note -
1. People still need to be able to afford to buy close-in.
2. A lot of people who bought far out during the bubble years are probably stuck with their homes; they can sell now only at a heavy loss. That has shrunk the credit-worthy buyer pool.
3. Despite a lot of talk about peak oil and supply constraints, I don't think the spike in gas prices this year is based on fundamental demand in countries like China and India. Much of it is due to geopolitical tension with Iran--fear by traders that Israel is going to hit Iran's nuclear facilities, etc. And speculation by funds trading in oil.
Fundamental demand does not cause the kind of sharp rise we have seen in the last year. So, gas prices will likely go back to more reasonable levels (not to $1.50 but $2.50 --$3/gallon ) at some point--perhaps months away, not years.
I'd buy in springfield/kingstowne, but several things
1) metro commute at what, $12 a day with parking to rosslyn?
2) could never drive up i395 or van dorn at 8-8:30...
3) don't want to sit on metro subway for 45 minutes in crowded train (ok, i could check out some hotties to amuse me).
so on say 20 days a month, that's at least $240 a month in metro, if not more, plus over 2 hours a day commuting.
No thanks.
I wouldn't consider living any place not in walking distance to a metro or commuter train, but gas prices have nothing to do with it. I just hate driving during rush hour.
The company I used to work for heavily subsidizes metro use -- and parking is something like $7 a day. Still, I didn't know anybody with a family who lived in close. The ordinary peons like me slugged in or car-pooled (encouraged by the company with parking discounts). The six-figure folks who might have been able to afford something closer in actually tended to live the farthest out. I guess so they could have a bigger house and more space for the kids. I imagine the schools were another reason.
It remains to be seen whether the younger generation will move out to the suburbs like their parents' when they start having kids or whether they'll stay put and change the cities-- and family lifestyles.
As much as I'd like to see the cities revitalized, I think the likelihood is that people will continue to leave the city once they have children. If a transformation occurs I think it will happen gradually as people begin to move less far out and build more walkable 'city-like' suburban neighborhoods.
Sarah: I didn't know anybody with a family who lived in close.
Many of my neighbors in 22305 have families and most are of modest incomes.
They can afford Alexandria 22305 because they bought here 10, 15, years ago.
As Lance has said, inflation was their friend.
Please do not be fooled by the static present and think that just because small SFH are over a half mill, that only someone who earns top dollar can afford to live there.
Consider 401 TENNESSEE AVE $639K., a 2/1 SFH which sold recently in less than 3 months.
CLEGG KATHLEEN B bought it for $83,750 in 07/31/1979
The public records shows a $0 transfer to a "Relative" on 09/08/1992. (Is it "Mom was so brave at the end" or "Hey. Thanks Mom. Enjoy Sun City, 'K.")
BURCH KATHLEEN M offered it for sale on 04/03/2008 and now it's CNTG/NO KO.
Looks like two KATHLEENs, maybe mom and daughter, lived there for over 30 years, paying, what, $700/month PITI?
Inflation was their friend. That house is in a beautiful area, wooded, on a large lot, 2 miles to Crystal City, less than a mile to the Del Ray's shops.
Those KATHLEENs have been living there for 30 years, paying almost nothing, that's once inflation got them over the huge sum of $83K.
KH said:
"Looks like two KATHLEENs, maybe mom and daughter, lived there for over 30 years, paying, what, $700/month PITI?
Inflation was their friend. That house is in a beautiful area, wooded, on a large lot, 2 miles to Crystal City, less than a mile to the Del Ray's shops.
Those KATHLEENs have been living there for 30 years, paying almost nothing, that's once inflation got them over the huge sum of $83K."
And over the 30 years they lived there, that part of the metro area changed several times ... starting off as "just a suburb to a sleeping southern town with not much happening" to eventually being a "really close in place in a part of a really happening international city". These Kathleens bought their place in that changing for the better place for then then heft sum of $83,000!!!! Could they have "waited it out"? Sure, but by now they'd have been pushed out to Manassas or some other far flung place waiting for 401 TN Ave (or other similar place) to drop down to a more reasonable $50K or so.
Okay, let's take a different example: As I mentioned, when I first started looking at townhouses in Del Rey in 1999 prices were considerably above what I felt we could afford. A year later they had dropped back-- in 1999 median prices were $200,000. In 2000 they had fallen to $150,000-- down 27% in one year!
Now, what if the atmosphere in 1999 had been as crazy then as it got later? What if people had been urging me to 'Buy now or be priced out forever' and mortgage brokers were calling day and night saying, "We can get you in that house for less than you're paying in rent!"
Okay, let's assume we had succumbed and that we found a bank to make us the loan. We now have a loan 27% higher than the one we took out the following year. "No, problem," you may think. "Median prices are still more than $400,000, so you would have made a bundle!" Well, maybe. Then again, considering that my husband was out of work 3 times over the course of the 5 years we owned and each time his starting pay when he found a job again was considerably less than it had been, we would have been in danger of losing the house altogether. As it was, I could afford the payment on my salary alone, so with a little belt-tightening we got by just fine.
This is an example from pre-bubble times. Now let's fast forward to 2006, when Lance was explaining how taking out $500,000 mortgage with an income of $75,000 made sense. $75,000 is pretty close to my husband's and my combined salaries at their peak, so let's use us as an example. And to make it a little less crazy we'll put us back into our same townhouse-- which was then selling for about $420,000. A fixed rate-- even at less than 6%, gives us a payment of something like $2700 a month when you include taxes and insurance. Okay, that's still doable-- as long as we're both still at our peak earnings and we forget about retirement savings, etc. But again, anything that goes wrong-- a job loss, a major illness, an elderly family member requiring care-- and we're in danger of losing the house. And the longer the downturn goes on the greater the risk becomes, because we can't afford to sell. Rent? You can't do that either, because these townhouses are renting for no more than $1200 a month.
On the other hand, consider the advantages of waiting: your rent is half of what that mortgage would be, so instead of spending every penny, you're saving around $18,000 a year. With all the houses and townhouses on the market you have a chance to actually live in the kind of place you would eventually like to buy and get to know the neighborhood. If prices go back up again you'll be paying no more than you would have been before -- and you'll have a nice down payment saved.
Okay, one last possibility-- say inflation takes off and over the course of the next two years, zooms to double digits! Then wouldn't you be sorry you hadn't bought at the peak? Well, not necessarily. If inflation takes off again there are two possibilities: either wages keep pace with inflation-- as they did the last time we had double digit inflation-- or they don't.
In the first case, there's no problem. Take it from somebody who was working at the time of the last inflationary spiral: although it's frightening to see prices going up quickly, as long as your wages are going up at the same rate it makes no real difference to your life style. If you haven't bought yet the amount of your real savings goes down and the price of the house goes up-- but no faster than your ability to pay for it.
But if we go into an inflationary spiral again, what is there to hold wages up? We no longer have an effective labor movement, and we have strong pressure from our competitors, particularly in Asia, keeping them down. The higher wages are here, the less we are able to sell abroad to offset our huge trade deficits.
So what, then, if you are in a loan you can barely afford? True, your monthly payment isn't going up, but everything else is. How are you going to pay for everything else you need? And with stagnating or falling real wages, fewer people are able to buy, so your chances of selling -- to take a better paying job, for instance-- are poor.
To bring this long story to a close, the common sense advice that parents have given to their children for at least the last century still holds: don't spend more than a quarter of your pay on housing, and make sure you save at least 10%.
Ted K
I dont dispute either of your first two points, however if you look at months of inventory it is clear that people are still buying, especially on the high end. Then again, it is the high end buyer who would be least affected by gas prices so maybe its not as clear cut as I thought.
I agree with you 100% on the gas prices not being due to fundamental demand. Speculation is part of it too. It seems as if speculators are hedging that gas will be at $4 a gallon in 5 years, and they are pushing up to that price now. I just heard today that china is going to start easing its price controls on gas. And yesterday that Saudi is considering increasing output. I think all it takes is the right news story to push the speculators out to the market, and gas down to where it should be which is around $3 a gallon - this very well could happen soon.
Sarah - I think you are right about the young moving out of the city when they have kids, but that is part of the issue about the changing demographics that the urban studies people are noticing. Specifically, a greater % of the young are choosing to remain childless. Its not a large % but it is an increase nonetheless.
I also think you are right about building the walkable "urban lite" cities out in the suburbs. Developers are starting to get it, and they are starting to build these sort of mixed use develoments. However, given how few of them really know how to do anything other than build tract homes, its going to take a while before we see any fundamental change out in suburbia.
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