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Tuesday, June 3, 2008
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60 comments:
In Vallejo California...
http://money.cnn.com/2008/06/02/
pf/retirement/vallejo.moneymag/
index.htm?cnn=yes
"But the real nail in Vallejo's coffin was the city's labor costs. Under the current labor agreement, the average police officer walking the beat in Vallejo will be paid $122,000 this year before overtime, according to city documents. An average sergeant will make $151,000; a captain, $231,000. The average firefighter, meanwhile, will bring in $130,000 before overtime."
Proof that blue collar workers make a lot more money in high income areas than most BH's on this blog believe.
"Proof that blue collar workers make a lot more money in high income areas than most BH's on this blog believe."
Who is disputing those numbers?
I think we all agree that some "blue collar" workers make six figures.
Those people are reflected in the incomes statistics however and do not make up a large percentage of the population.
(and in case you didn't notice that article is about a city that has gone bankrupt... )
"First-year Vallejo police officers make more money than their peers in any other large city, according to a recent nationwide study by a police consulting firm.
Offering a $76,768 annual salary at the end of the first year, Vallejo ranks at the top for highest base pay in a tally of 200 cities, Policepay.net reported in its 2006 Police Pay Index.
Besides topping the largest cities, including Los Angeles, by more than $20,000 annually, Vallejo also bested four other Bay Area cities that rounded out the top five - Sunnyvale, Hayward, Oakland and Fremont." According to Officer.com
link: http://www.officer.com/web/online/Funding-and-Management-News/California-City-Has-Highest-First-Year-Base-Pay/4$28999
Payscale.com shows average starting salaries for officers nationwide at just under $15/hr, going up to $27/hr for 20 years or more experience.
I made about $20 hr. in my old assistant job, causing one housing head to call me 'working class' and comment that I couldn't really expect to be able to afford to buy a house.
If you aren't making 6 digits, you can't expect to afford anything in this area (NOVA)
From the DC police Web site:
"The starting salary for police officers is $48,716 a year. After 18 months of service, most police officers can expect to earn a base salary of approximately $53,299 a year. Lateral officers' starting salaries range from $51,151 to a maximum of $71,971, depending on their previous experience."
Pay for a police officer in Arlington starts at $45K and tops out at $75K.
Here's Fairfax:
"Current Fairfax County Police Salary Scales
(July 2007)
Police Officer $45,741 - $74,508
Police Officer First Class $52,734 - $77,914
Master Police Officer $70,516 - $81,632
Sergeant Police Officer $67,159 - $85,713
Shift Differential Pay: .90 for evening shift and 1.30 for midnights"
Here is Montgomery County:
"We offer a starting salary of $45,165(effective 7/1/07) for Police Officer Candidates.
Lateral Salary Range (based on prior police or military police experience). Year 1-$46,746, Year 2- $48,383, Year 3- $50,077, Year 4- $51,830, Year 5- $53,645."
These are all pretty high salaries for police officers who typically earn well under $40K...firefighters typically earn about $10K more than cops, because the physical requirements of firefighting further limit your pool of possible applicants (you get more washouts).
NYC cops get terrible money; the starting salary for a cop in NY is -- I'm not kidding -- $36K. In five years you'll top out at $55K. So there are a number of bedroom communities in New York state that offer significantly higher wages to NY cops to lure them out of the city; this may be what Vallejo was doing. But I never heard of a cop making $122K before overtime; this is a job that only requires a high school diploma.
todays story:
http://www.wtopnews.com/?nid=25&sid=1414414
Housing market overvalued by nearly 25 percent
June 3, 2008 - 10:07am
Patricia Guadalupe , WTOP Radio
WASHINGTON - The local housing market is still overvalued by nearly 24.6 percent and will likely come down, according to a new study of home prices.
"There is still room for the Greater Washington area to come down. The same is true of a number of areas," says Jim Diffley, group managing director of Global Insight's Regional Services Group.
"Prices of homes have been falling well before the economy slowed," Diffley says.
He says the most significant drops occurred during the last two quarters. The abundance of foreclosed homes and the credit crunch contributed to the declines.
"The housing market will take some time to recover as consumers are constrained not only by tighter credit standards, but rising costs in other areas of the economy," says Global Insight economist Jeannine Cataldi. "There is also excess supply that needs to be absorbed, plus the rate of foreclosures entering the market needs to slow before housing can begin to pull out of its current downward trend."
While Global Insight is not forecasting that prices will decline by 25 percent, the risk is there, especially as the economy declines.
Diffley says in markets where there have been price increases of more than 30 percent, prices will drop, possibly by double digits.
Nationwide, the study found that 262 housing markets out of 330 saw price declines, with California, Florida and Michigan experiencing the steepest losses.
(Copyright 2008 by WTOP. All Rights Reserved.)
Patricia Guadalupe , WTOP Radio
WASHINGTON - The local housing market is still overvalued by nearly 24.6 percent and will likely come down, according to a new study of home prices.
sorry..didn't mean to post the whole story.. wtop cut and paste is bad.
yeah, please. i know that i wasted my time in grad school. should have been a cop in cali.
though i still have some doubts ---first one is about quality of the reporting (salary numbers are wrong, they must be after overtime, not before), second is about the consequences of very high pension benefit obligations and public service salaries --- bankruptcy for the city, cutting the number of public service employees, raising taxes --- which probably leads to the lower real estate prices.
nice bubblehead argument, doug.
BAS said...
"If you aren't making 6 digits, you can't expect to afford anything in this area (NOVA)"
And, why is that? Certainly I don't expect minimum wage earners to be able to buy a mansion... but shouldn't a median wage earner be able to buy a modest townhouse?
Why is it acceptable to you that someone making $40K a year as an admin assistant to a federal position, or a manager of a retail store making about the same can't afford to buy a modest house in this area.
xpovos: that's the thing - its not acceptable.
i was at 30k in 96, and always locked out ... not wanting to be in a condo, a 200k home on 30k would be stretch in 1996 with no downpayment(hell wouldn't bank talk to you?)
that admin will have to get married to someone making 70k. just a fact of life.
Toll Brothers Swings To 2Q Loss On More Land Write-Downs
" "...We believe Congress should jump-start demand for new homes with an initiative that will bring buyers off the sidelines and into the market, and thereby stop the downward spiral of home prices," the company said, adding that it favors a tax incentive for those who buy homes within nine months of passage, which Toll said would create a sense of urgency..."
hog
bas: i was at 30k in 96, and always locked out ... not wanting to be in a condo, a 200k home on 30k would be stretch in 1996 with no downpayment(hell wouldn't bank talk to you?)
30K is hard but not impossible.
Between 1990 and 1999, older, 3/1 22305 TH were about $110K. Garden apartments, 1/1's, in Auburn Village were about $45K.
The TH's are selling for between $350K and $450K now, depending on trim and upgrades. This is down from $400K to $500K 3 years ago. (Big whoop)
Auburn Village 1/1s are about $200K.
OK, Lance Mode ON! If you had put down $4K (10%) in the mid 1990's, snagged an Auburn 1/1, you'd have over $160K in equity today. Paying that low mortgage for over a decade should have put more jingle in your pocket too.
With 160K in your pocket, you have more options.
This makes sense if it's convenient for your job to live a mile from Crystal City or the metro.
Anyway, that's the point that Lance has been trying to make. As I understand it.
We bought a townhouse in 2000 in Del Rey. I'm married, but could have qualified on my salary alone. So it's certainly not the normal state of affairs for people with salaries at or slightly above the median to be unable to afford homes.
I bought for the first time with my first husband in California, just after they began to allow a wife's salary to be counted in qualifying. That was the start of another housing bubble and it was hard to afford until my husband got big raise. Lance's advise is actually quite good-- if you're young, if you're not buying at the peak, if you're sure you're really going to be able to stay in the house the seven years that you normally need to in order to break even and if your PITI is not more than 30% of your income. Otherwise, rent a place in the neighborhood where you think you'd like to buy and wait for sanity to return.
Sarah said:
"Lance's advise is actually quite good-- if you're young, if you're not buying at the peak, if you're sure you're really going to be able to stay in the house the seven years that you normally need to in order to break even and if your PITI is not more than 30% of your income. Otherwise, rent a place in the neighborhood where you think you'd like to buy and wait for sanity to return."
I use the 5 yr rule (i.e., break even at 5 yrs and not seven), and I take it a bit more stringently ... i.e., that "if" alone is enough to mean you shouldn't be looking to buy ... But there is another alternative (to renting) providing you meat the 5 yr rule (and aren't young, are buying at "the peak" etc.) ...and that is to (1) set your expectations in line with what is actually doable under today's price conditions AND buy in an area which possesses a good certainty of retaining value. (Yes, now that we're in a NOT in a boom they're easier to pick out then they were during the boom ...) And why this alternative to renting? Because there is no guarantee that "sanity" will ever return.
"if you're young, if you're not buying at the peak, if you're sure you're really going to be able to stay in the house the seven years that you normally need to in order to break even and if your PITI is not more than 30% of your income. "
I think everyone here agrees that for someone planning on staying in one place a long time buying usually makes sense, given the conditions you laid out.
The problem with lance's advice is that he has been trying to tell people to buy in at the peak in anticipation of even higher prices... (while denying the possibility that there have been/will be price declines)
Even now he claims that "90%" of the area is actually climbing or stagnant...
"and that is to (1) set your expectations in line with what is actually doable under today's price conditions AND buy in an area which possesses a good certainty of retaining value."
Ah yes, your newest theory...
Seek out one of the few remaining areas where price drops have not been observed and buy there... heh
The large majority of the area has seen declines lance...
"And why this alternative to renting? Because there is no guarantee that "sanity" will ever return."
Another variation on the "new paradigm" I take it... "sure bubble pricing is nuts, but who says it can't stay nuts forever?"
I can't possible think of a flaw with that argument...
Leroy,
Like beauty, sanity is in the eye of the beholder.
You think it's insane that the general price level of homes has more than doubled in less than 10 years. Someone coming over from Europe with Euros in their pocket, think our prices are still quite the bargain compared to what they would have to pay at home.
So, you may think it's a matter of "staying nuts" forever, I think it's just accepting facts. I perhaps find it easier to do so than you because I can remember when I thought it "nuts" that the average homeowner was paying in excess of $100,000 for a house! And you know what? ... that "insanity" has not only remained, but been magnified by a power of 10 ....
hey guys, check out this sampling of home prices back in the '70s ... (on the right of the page.)
www.thepeoplehistory.com/70s-homes.html
buy in an area which possesses a good certainty of retaining value
Neither of the houses I bought met that criterion. The first house was in an extraordinarily dangerous neighborhood-- the only one we could afford that was anywhere near the beach. I always thought it would eventually turn into a desirable place to live. And it has-- 30 years later. Del Rey was a pretty ordinary, working class neighborhood when we moved there. In fact it was still considered rather dangerous. It didn't get to be trendy until a few years after we bought.
I'd still stick with the 7 year rule, too. My folks bought and sold 10 or 11 houses and condos over the course of 60 years and two academic careers. When they had to leave in less than 7 years they lost money more often than not-- sometimes substantial amounts. I recall my father remarking that being over 40 and having to spend down savings in order to cover the loss on a house sale was not a pleasant position to be in.
As for sanity not returning-- yes, I suppose it's possible that the US will never again be a country where middle class people-- meaning people who earn close to the median income-- can afford to buy houses. But given how quickly the run up in prices happened-- and how quickly they're now falling back down to earth-- that seems to me about as likely as Bertrand Russell's teacup orbiting the moon.
bas, kh, lance... I'll take on the lot of ya.
Today, 30K is not what it was in the late 90s. The value of the dollar has decreased through inflation, home prices have increased on the margin at least for that, and are generally nicer with more ameneties, but attempting as best as possible to compare apples to apples, let us say that for all intents and purporses today's area median income was 1996's 30K.
kh has made my point well, but takes it in the opposite direction. In 1996 it was possible to buy modestly on 30K. I stipulate that it is not possible to buy modestly today on 50K. The places that are in the same equivilant price range are all short sales or foreclosures. We've read numerous stories about how banks are not moving these properties assiduously. It is essentially impossible to buy these properties at those prices.
On the whole, I am a fan of housing. I am a 'bubble head' because housing is out of line with these exact standards of historical norms. Today there is no place for anyone to buy and hold and have it make sense; to remove the costs of rent, grow a small bit of wealth, build that equity and provide stability.
I am not opposed to the theory of housing espoused by lance time and again. I doubt any of us are. We might argue certain legal points, such as the benefit of a tax reduction to home owners...
But right now that theory doesn't work in this area. When it does again, we'll be in a better place. Housing prices will be lower; more people will be able to buy and we can get back to building stability.
The road from here to there is ugly and scary and conjuring up fantasies where we don't have to walk it doesn't do any good. Suck it up, hitch the belt in anoter notch and let's get on with the recession so we can hurry up and get it over with.
"You think it's insane that the general price level of homes has more than doubled in less than 10 years."
And what do you call it?
A new paradigm?
Try and use your head.
Housing prices nationwide don't just inexplicably shoot through the roof and then stay high forever.
The explanation for what happened is now widely understood. Only you and a few other hopelessly clueless housing pumpers still insist on living in some kind of an alternate reality where there is some doubt what has taken place.
"Someone coming over from Europe with Euros in their pocket, think our prices are still quite the bargain compared to what they would have to pay at home."
Now you are trying to mix currency exchange rates into things? You are out of your depth already, don't make this more complex than it needs to be.
"So, you may think it's a matter of "staying nuts" forever, I think it's just accepting facts."
lol... and you have proven to be real real good at that haven't you?
Tell us again how "90%" of the area is still appreciating or holding steady...
"I perhaps find it easier to do so than you because I can remember when I thought it "nuts" that the average homeowner was paying in excess of $100,000 for a house!"
Inflation lance... again, there is no knowledgeable debate about whether or not what we experienced was a bubble.
The "gains" observed in the most recent run up were with without precedent in modern history. If you want to argue with that go get some actual data... which I know you won't.
I really think this blog has jumped the shark in all respects. There's really not much more to talk about and it just grows repetitive. I will say that while I disagree with Leroy on some specifics the fact that he is a kid in his mid-20s I frankly find endearing, and he will go far in life based on the persistence and aggression he shows here. TTFN.
Apparently, there was a time in the early 1980's when interest rates on home loans were pushing 18%, and most people thought that the country would never see 6% interest rates again. . . .
We all know what happened.
Remember when this blog was good, before comments were allowed. You used to find homes to buy that were great deals (just bought one because of this site).
There is nothing "wrong" with this site. I find it the best place to go for NOVA housing discussion.
If the Lance/KH/Leroy discussion bothers you, please just skip it.
"As for sanity not returning-- yes, I suppose it's possible that the US will never again be a country where middle class people-- meaning people who earn close to the median income-- can afford to buy houses. But given how quickly the run up in prices happened-- and how quickly they're now falling back down to earth-- that seems to me about as likely as Bertrand Russell's teacup orbiting the moon."
WELL PUT.
bas: In 1996 it was possible to buy modestly on 30K. I stipulate that it is not possible to buy modestly today on 50K.
maybe.
A 1/1 Auburn Village garden apartment might have been about $400/month PITI; that includes some for a condo fee.
In any case for the first few years, it would have been cheaper to rent.
Today 1/1's are renting for about a grand-one. That's just the way it works.
For the first few years, the wise renter would have an extra hundred bucks, perhaps two hundred to invest but many would blow it on cars or parties.
Towards the end of this period, the shrewd Auburn Village HH, that's a hypothetical-bas, would see the TI part of their PITI increase as well as the condo fee, whatever that's running.
On 211 E GLEBE RD #211D, it's Condo/Coop Fee: 205.00 Taxes: $1,899.04 / Year 2007
So figure that the $400/month is now $600K, about $500 less than renting a comparable place.
Don't know how much of the $500/month, $6000/year, the hypothetical-bas is saving but that's more jingle to keep the one hundred sixty thousand in equity company. That equity is cash when he sells.
Of course, in this blog, historic facts and hard numbers are always trumped by a LOL followed by, that's silly, next year prices will fall.
Seriously, I hope bas or xpovos are not expecting to buy close in on a 50K salary.
The funny/sad part is that with the $160K equity and probably $30K more in savings (compared to renting) and a $50K salary, a TH or small SFH is within striking distance.
Here's one on Glebe, near Route 1.
Here's another, it's near the Del Ray shops and has been on the market for 6 months. Says Reduced and Short Sale.
Ed McMahon May Lose Beverly Hills Home
http://tinyurl.com/4kn7nn
By Neil Irwin
Washington Post Staff Writer
Wednesday, June 4, 2008; Page A01
Prices have been soaring long enough and fast enough, economists say, that the nation is at risk of a self-reinforcing cycle of inflation like that experienced in the 1970s.
Re: Article by Neil Irwin
He points out that labor negotiations are changing for some sectors:
"...With higher inflation, unions in a position to do so are now pushing for higher across-the-board raises..."
But:
"...The big question is whether those expectations of higher fuel prices feed into a wage and price spiral like that of the 1970s, in which workers demanded -- and received -- double-digit wage increases to keep up with higher prices, which then fueled further inflation.
There are huge differences between now and the 1970s. In the past year, the average weekly wage for private sector non-managerial workers rose only 1.9 percent. A soft U.S. economy could continue to leave workers little leverage with which to demand pay hikes to match higher prices.
Moreover, fewer workers are unionized, fewer of those have automatic cost-of-living adjustments, and unions have less clout with which to negotiate wage increases. Finally, many of the most heavily unionized industries, such as the automakers, are in such dire financial straits that raises of any sort are unlikely.
"There is no evidence that wages have started to spiral up," Janet L. Yellen, president of the Federal Reserve Bank of San Francisco, said in a recent speech..."
It'll be interesting to see how this plays out.
hog
hog: "There is no evidence that wages have started to spiral up," Janet L. Yellen, president of the Federal Reserve Bank of San Francisco, said in a recent speech..."
It'll be interesting to see how this plays out.
Hog, I am with you there.
I have two reports of gas-commuting costs bonuses. These came as a surprise to the employees in both cases. One is $300/month and the other is $100.
I know people who have taken new jobs in the last few months, in part because of the cost of commuting. They are "do-ers". One fellow has negotiated a huge salary boost.
Why don't the talkers and those with the LOL-opinions ever leave.
Lance may be right again; perhaps inflation is about to rage.
Fine with me.
Without wage inflation rising prices just mean the whole country gets poorer.
The article is right to point out that while we have seen rising prices, we have not seen rising wages.
"Lance may be right again; perhaps inflation is about to rage. "
Yeah, "again" like when he said the bottom had past and prices were already on their way up again... last year...
"Chances are that there will be buyers at higher prices now that we're past "the bottom". David L. was right, David J. wasn't. We've bottomed out and prices are on the move up. This makes no difference to us homeowners who already locked in ... But all those BHs who held off waiting for magically drastically lower prices? They're screwed ..."- lance April 5 2007
"It's just a regular business cycle. And we've indisputably aready bottomed out. Where does that leave you with your far fetched theory?"-Lance March 22 2007
etc etc
If you can't even be honest about your partner's track record how can anyone expect you to be honest about anything?
Even if you had some insight into the market no one can count on you providing it honestly.
Hog said:
But:
"...The big question is whether those expectations of higher fuel prices feed into a wage and price spiral like that of the 1970s, in which workers demanded -- and received -- double-digit wage increases to keep up with higher prices, which then fueled further inflation."
Let's see ... Do we think a President Obama would ensure wages went up? Haven't livable wages (without consideration of the bigger picture) been one of his big stump issues?
narl said:
"I will say that while I disagree with Leroy on some specifics the fact that he is a kid in his mid-20s I frankly find endearing, and he will go far in life based on the persistence and aggression he shows here."
hubris
Main Entry: hu·bris
Pronunciation: \ˈhyü-brəs\
Function: noun
Etymology: Greek hybris
Date: 1884
: exaggerated pride or self-confidence
Seriously, I hope bas or xpovos are not expecting to buy close in on a 50K salary.
Seriously, based on my own and my parents experience, I think you are mistaken. 50K is above the median income for DC. Some 60% of people in the US own their own homes. If only people earning twice or three times the median income can afford to buy a house at the median price, who do you think the current home owners are going to sell to?
As I said, I've been through these cycles before. There are, indeed, some things that make this one 'different' - real incomes were increasing at a pretty good pace, for one, as opposed to being pretty much flat or negative over most of this 'bubble' period. And inflation was high. Both these things meant that prices didn't need to fall as far in nominal terms in order for incomes to 'catch up'.
Financing is another big difference in this bubble. In the 80's some people I knew built 'spec' houses using interest only loans-- but they certainly weren't something the everyday buyer used. Negatively amortizing loans? Liar loans? NINA and NINJA loans? None of that existed as far as I know. If you had a variable income -- from a small business or commissions -- you documented that with income tax forms from the previous few years.
Another difference-- home equity loans and lines of credit. You could get a home equity loan before this run up in prices, of course-- if you could document that you could afford the payment. And most banks weren't giving out such loans for ordinary consumer spending. That's what credit cards were for. (And they weren't all that easy to get, either.)
In previous price run ups it was only people who bought during the peak price years that were seriously underwater for any length of time. Since they could afford their payments most of them could simply stay put, waiting for prices to rise again and benefiting, along the way, from a decrease in interest, which cut payments by hundreds of dollars a month.
Compare that with the current situation, where many people have been 'cashing out' the equity on their houses to supplement their diminishing real incomes to pay for the trappings of the middle class -- higher education and quality health and child care among them.
This leaves a much larger pool of people who are underwater. Even assuming they can all afford their payments that means a longer than usual downturn.
sarah said:
"Seriously, based on my own and my parents experience, I think you are mistaken. 50K is above the median income for DC. Some 60% of people in the US own their own homes. If only people earning twice or three times the median income can afford to buy a house at the median price, who do you think the current home owners are going to sell to? "
Sarah, KH then went on to explain how someone earning $50K can afford something in this area ... He basically said start small, build equity, and roll it over into a larger home ... i.e., let inflation be your friend ... and help level off the playing field between you and those earning two to three times the medium income.
This is a concept someone like Leroy cannot grasp. He wants it all and he wants it now. Hubris. It's been my experience that the "all or nothing" approach usually leads to "nothing".
kh saidA 1/1 Auburn Village garden apartment might have been about $400/month PITI; that includes some for a condo fee. In any case for the first few years, it would have been cheaper to rent.
-------
I call bull on $400/month rent in Alexandria in 1996 in any place that wasn't a slum. I payed $370 in Kansas in 1993 for a 1/1.
novawatcher said:
"I call bull on $400/month rent in Alexandria in 1996 in any place that wasn't a slum. I payed $370 in Kansas in 1993 for a 1/1."
Actually, back then the DC area was only a slight bit more expensive than a place like Kansas. The city has grown and changed, that is one of the factors that I believe many of you are missing. I've known DC since '77 and it isn't the same city in the least. It was still a "sleepy southern town with southern efficiency and northern charm" back then. By 1993 the transition to the international city it is become today, was still in its baby steps. Yes, much more affordable housing was available here as recently as '93 ... and far fewer people (and more importantly) far fewer dollars were bidding for that limited pool of available "land" and the houses and buildings that go with it.
"This is a concept someone like Leroy cannot grasp. He wants it all and he wants it now. Hubris. It's been my experience that the "all or nothing" approach usually leads to "nothing"."
I guess you have given up completely on actually debating and instead have resorted to these sorts of lies.
Everyone here understands perfectly well that what you are saying is simply a lie.
Why bother?
Why bother with any of your obvious lies for that matter?
I'll accept 50K as a median income for the area. Certainly there are a lot of people making less, and I'd like them to be able to buy a home too, but surely if the median income can't afford to buy, there's a problem; right?
So, let's look at 50K. And since this is the NOVA bubble blog, we'll use VA as the state for tax purposes.
Assumption #1: Either an employee sponsored or self-governed IRA into which the individual is depositing 15% of income as a retirement plan. This "pre-tax".
Remaining: $42500.
Minus taxes ::
Fed Tax(SS&M): (6250)
FICA (10%): ~(3200)
VA: ~(1500)
Net: ~31550. Obviously this number is very tweakable with a wide variety of assumptions. Married vs. single. Kids. How many? Etc. But this is a useful baseline that is at least somewhat grounded in fact.
A useful rule of thumb was that housing should be 28-35% of income. That variation is based on net vs. gross and other considerations, and we want an extreme example here, so lets go full on 35%. In pretty much any circumstance you don't want to be paying more than that for housing costs, particularly not at this 'lower' income level around here because you end up being unable to pay for something else important.
Housing Budget = $31,550 * 0.35 = 11042.50. We'll even round up for easier math later and because we know people are inclined to stretch past what they know they ought.
Housing Budget = $12,000.
Assumption #2: He's got perfect credit and can get a 6% loan 30-year fixed.
Homework assignment. Find the place in NOVA he can buy. Close in, or out in Stafford, it doesn't matter.
Bull Lance. I was looking at jobs in both DC and KCK at the time, and apartment prices in DC were nearly twice as expensive as in KCK.
You can honestly say with a straight face that rental prices tripled between then and 2002?
http://www.nvar.com/market/rental/rentcnty21203.pdf
xpovos,
At 6% / 30 year fixed / $0 down, you're probably looking at about $130K loan (then add in taxes/insurance). This is, of course, a rough estimate.
In the last 4 or 5 years, a family with $50K/year had virtually no chance. If you look in the foreclosure hot spots, it is possible to find something now. Might not be desirable, but still technically possible.
A few in Sterling (there are many more in 20164):
$133K - LO6776151
************
$62K - LO6771411
Woodbridge and Manassas are probably the only other locations right now (maybe a few in Herndon too).
hog
hog, good work.
So, here is what we acknowledge a median income earner can buy in the area, even now, after a period of decline in prices that rivals the Great Depression.
1) This is a nice Bank Owned Townhome, Great Location, Walk to NVCC and Shopping. Minor TLC and paint and you got yourself a great home at a very affordable price for Northern Virginia. Don't miss this opportunity. 4 bedrooms 2 1/2 Bath with Fenced large backyard.
Issues:
* Bank Owned. That means buying this will take 3 times as long as a 'normal' property. If it's possible at the advertised price at all.
* Minor TLC (in other words probably substantial damage to something cosmetic)
* Location, not exactly the best.
And 2) 1 bedroom 1 bath at incredible price. House needs a little tlc, Walk to Sterling Plaza. Earnest money check needs to be made out to Remax Gateway.
Issues:
* Tiny apartment, not even a house.
* Real estate agency owned, not as bad as a bank, but still not fun.
* "Needs a little tlc" see above.
So, there you go. The median wage earner has very few real choices for buying real estate anywhere in the area. And those choices he does have are bad for a variety of reasons.
That inherently will put downward pressure on prices. No one left to buy, as it were.
Wake me when we get to the point that this fellow can afford to buy a townhouse in a 'normal' sale in South Fairfax. That'll be something close to the bottom.
"I'll accept 50K as a median income for the area."
Where did this number come from?
Based on the data I have seen it sounds low.
Check out:
http://www.pwcgov.org/docLibrary/PDF/005746.pdf
This report lists the PWC median household income as ~81k per year.
This should be the lowest median income of the NOVA counties.
leroy, it comes from different measures.
I'm looking at median personal income. That is, a single person's income, or a single earner for a family.
Household income, the number you're talking about is the entire gross for a household; usually multiple earners. Two for a 'standard' two-income family, more if a kid is working too, even more if it's a hacienda with 5 unrelated people all living together to cob up the mortgage payment.
So, let's use household median income, then. Quickly through the same calculations, I'll not waste digital ink in repeating:
Source
County/City | Median Household Income | Housing Budget
Fairfax | $100,318 | 19855
Loudon | $99,371 | 19668
Arlington | $87,350 | 17288
Stafford | $85,014 | 16826
Prince William | $80,783 | 15988
Alexandria | $80,449 | 15922
This of course ignores the tax implications of rising incomes, multiple incomes, etc. Simplicity is the goal here. So, we'll again use the favorable 6% loan in order to keep things simple.
So, top of the line, Fairfax a great loan for a median income household maxing out their housing spending gets you:
$179,246
Since this is household income now, and not personal, I expect this to buy me a SFH.
Have fun.
"Since this is household income now, and not personal, I expect this to buy me a SFH.
Have fun."
Oh I wasn't trying to argue that housing prices weren't out of line with incomes.(I think you know that) I was just trying to make sure the numbers being plugged in were accurate.
Garbage in, garbage out and all that.
For the record I think household income is probably the most applicable number for these sorts of discussions.
And simply because I think my numbers -might- be wrong, if my numbers for a 50K income are accurate, which I feel much more comfortable about, then the final answer for a 100K income should be about double, right?
So, where's the $260K Fairfax SFH? Since I know you're not going to find any for $180K.
Xpovos said...
"So, top of the line, Fairfax a great loan for a median income household maxing out their housing spending gets you:
$179,246"
Xpovos - while I dont question your methods, I do question your results in that they seem to contradict the way this area has been operating for a long time.
Case in point, look at this 3/2 1,230 square feet in Fairfax county. (ignore the 80 acres, in the listing - tax records indicate this is a misprint).
http://www.realtor.com/search/listingdetail.aspx?zp=22003&typ=1&sid=42fcbddb459d469991a526bce6da8f0e&pg=2&lid=1093606174&lsn=17&srcnt=223#Detail
It seems to me this is a very modest house, and would certainly suggest it was affordable to a moderate income family in the area. Correct?
The problem is, look at the tax records for sales prices.
http://icare.fairfaxcounty.gov/Forms/Datalets.aspx?mode=sales&taxyear=2009&ownseq=1&roll=REAL&jur=&sIndex=2&idx=1&LMparent=138
This place sold way back in 1990 for $175K. Do you really think its reasonable for that place to sell for rouchly 1990 prices again? I have no idea what incomes were back in 1990 but my guess is they were not high enough to make this place affordable according to your calculations even way back then.
Again, I am not saying I dispute your calculations as to what "should" be the case. However if this was not the case way back in 1990, why should it now be the case 18 years later?
the anonymous,
I don't know for sure. Have incomes climed that much since 1990? Certainly they have some, if only to adjust for inflation, and so we'd expect housing to go for a similar price, adjusted for inflation.
Or maybe not, was it here recently where we had a discussion of housing prices going up on average 1% yearly, directly in line with population increases?
That gives a 'modern' price of $210K. A bit more than the number calculated, but substantially less than the rough estimate I posted afterwards.
It's also close to in-line with the ~$220K apparently being asked. But look at the asking prices for homes nearby. They're likely larger or more modern, but how much more so?
$580,000?
$480,000?
$900,000 I probably shouldn't even include this one... that itself is an impressive little number of a asking price for that house. Last sold 2006 for $470K.
Xpovos - I sent you the wrong link - sorry. The place is located at 5004 Killebrew Drive and for sale at 335K
http://www.realtor.com/search/listingdetail.aspx?zp=22003&typ=1&sid=7538e3a992e6461f9c8b114db0f3eb02&lsn=17
As far as income growth goes, this link indicates FFX median HH income in 1991 was $61,000 and as of 2006 was $100,300 (roughly a 60% increase)
http://www.fairfaxcounty.gov/demogrph/gendemo.htm
Therein lies my question. If this house was "affordable" and "worth" 175K in 1990 long before funny money was part of the equation, using that same 60% increase would suggest this house is now now "affordable" and "worth" about $280,000.
Sure this is only one example, but it shows that even back in 1990, it doesnt appear that the market was making the same sort of calculations you are suggesting in this thread. My guess is that if you look at other houses sold during the pre-bubble era, you will find the same thing. Specifically, despite what your eminently reasonable calculations suggest, the market places a higher value on these properties.
"Sure this is only one example, but it shows that even back in 1990, it doesnt appear that the market was making the same sort of calculations you are suggesting in this thread."
One issue is that 1990 was roughly the peak of the last cycle.
According to CS prices in spring 1999 were equal to those of spring 1990, almost a decade of zero growth.
I haven't crunched the numbers so I don't know how much this helps.
The Anon, Xpovos,
I would just point out that 1990 was on the tail end of another up cycle in real estate. So, those prices were then pretty much flat for the next 10 years.
Keeping that price constant, and letting incomes rise for several years, helps reconcile your statements.
Here's a link for NOVA during that time. There's a huge spike (on greatly diminished sales) in 1991 but it's pretty slow going through most of the 90's after that.
http://www.nvar.com/market/history.lasso
My $0.02
Ahhhh...REAL calculations, I love it. Use a calculator the HUD recommends + the median income for a household in Fairfax County and you get 3 choices - FHA, VA, and Conventional. I put in $100K yearly with NO debt. I know everyone on this board makes $200+K, but let's use real numbers. :) Here are the #'s for Conventional :
Max sales price - $379,972
Loan Amount - $322,976
6.25% / 30 yr
PITI + PMI - $2,750
Other Monthly Housing - $839
Total - $3,589
Down payment - $56,996
Closing Costs - $12,168
Total Cash @ Closing - $69,164
The median SOLD price for FF county in April 2008 was $400K (avg. asking was $504,723).
In short :
- Median income of $100K
- NO debt (no car/CC/student loans)
- Excellent credit
- $69K cash on hand
cannot afford the median home in FF county. It's worse if you are FHA or VA - $310K and $320K respectively. The calculations indicate the HUD says no more than 33% gross income should go to your housing PITI + PMI. That really is the core percentage to use - you can fiddle with all the other numbers.
Since I'm guessing the average household doesn't have $69K in the bank and no debt, the FF county prices have some ways to go. Another 10% reduction seems fair putting Fairfax at $360K for median sold.
I do not believe we will have run away inflation AND wage growth - we are in a recessionary period with stagnant wages and fierce global competition. The FED has indicated they will not lower rates which will lead to less inflation. The energy increase is just the icing on our painful cake. I'm not a pessimist, but good times are not coming.
Comments??
Nova: I call bull on $400/month rent in Alexandria in 1996 in any place that wasn't a slum. I payed $370 in Kansas in 1993 for a 1/1.
Are you saying that in the mid 1990's a 1/1 in Auburn Village 22305 was renting for more than the PITI+Condo fee?
This isn't "old town" which wasn't quite as gentrified as it is today, nor Del Ray, which was still at the edge of a drug-gang area in the 1990's
Auburn is a block from E REED, the unofficial armpit of Alexandria.
There's a tradition, probably left over from USENET for points going to squeaks of "LOL", "Liar", and "I call BULL" but eventually, the hipshots tire and links and facts weigh more.
Here, have some content. 211 E GLEBE RD 211D
HAGAN PATRICIA J buys in 01/19/1983 pays $50,500. Over the next 15+ years, the assessment wobbles up to 59.7 (91, 92, 93) and down to 40.4 (99).
What does HAGAN PATRICIA J do? She lives in her own condo, lives her life, pays 1983 prices for shelter for TWO DECADES.
Then in 01/15/2004, she sells to DENTON JULIE A for $142K, walks with 100 large. While 100K is real money, more significant is that HAGAN PATRICIA J did not have rent increases, owned her own place, decorated it as she pleased for twenty years. Perhaps she retired or perhaps she got a big raise and rolled her equity into a TH or SFH.
Today, DENTON JULIE A has listed the property for $215K, more than she paid, less than last year's assessment.
Why, who knows.
Although the tax records show that in the 1990's, the property assessment fell about 30%, 59.7K to 40.7K, somehow HAGAN PATRICIA J and DENTON JULIE A are doing just fine, exactly as Lance says.
Even stranger, that 30% fall didn't make the news, day after day.
No one cared. It was irrelevant. Owners in Auburn lived their lives.
This is not to say that the assessment for 211 GLEBE RD E #211D might not plunge 25%. The drop to date being in-the-noise.
Forward from here? It's all a gamble but go with house odds.
"Are you saying that in the mid 1990's a 1/1 in Auburn Village 22305 was renting for more than the PITI+Condo fee? "
-------
I have no idea what Auburn Village is. Is it a ghetto? For a place within the beltway to have rented at KCK prices in the 1990s, it must have been in the slums.
I do know that there were two times that I thought about moving here, and in both instances I checked out apartments (1993 & 2001). In both instances, rent here was substantially (1.5x or more) than either the place i was living or the other place I was living at the time. Keep in mind that I would have been looking at comparable places in both locations.
I have no idea what the rest of your rant is about.
This thread needs some more of lance's wisdom and experience...
"nikki said:
"I hate to break it to you, but a couple earning $75K a year hasn't the means to repay a $500K loan using anything other thatn the collateral of thier home and the potential profits from selling it."
Nikki, did you even attempt to do the numbers before making this statement? I just did ... and you're wrong. An interest only loan at 6.50% would result in payments of $2,708 per month (or $32,500 per year)... and this is 43% of gross income add in property tax and you are at something like 45% ... That is still less than the 46% - 49% that most lenders use as the upper limit of acceptable. So, you're not comfortable with an interest only loan? Then don't buy that big of a house (or in that nice of a neighborhood) that you're going to need a $500,000 mortgage. Buy less ... but weigh the consequences of your actions. Personally, if I had to choose between the "comfort" of an amortizing loan and getting a lead-free house in which to raise my children, I'd pick the latter even if it meant doing an interest only loan."- lance oct 26 2006
On exotic mortgages:
"And after jet travel became common, many people refused to give up the relatively safer oceanliners to cross the Atlantic. But as time went on they realized how'd they'd been left behind and the world had spun forward. Today, unless you are willing to pay oodles of dollars to take the QEII, your only other ship choice are freights that take on guests ... Not quiet the oceanliner experience of years ago. The moral here? Times change ... Change with them or be left behind. Learn to adapt. Creative mortgages didn't cause price inflation. They were developed to combat it. Your friends are just plain wrong to be limiting themselves as they are doing. (A) When one gets approved for an ARM one gets approved as being able to handle the ARM if it reset to the highest interest rate allowed per the contract (i.e., the "cap".) Which means that even in a worst case scenario --- an unlikely scenario --- they'd still be able to afford the house provided they were willing to make minor sacrifices to have that house; and (B) Just about anyone can and should expect to have a rise in income between the time the loan originates and the date it resets 5 or more years down the road. Your friends are putting up artificial and self-imposed roadblocks to their happiness and security. It's there life, so it's best not to say anything. But certainly don't encourage them in this irresponsible behavior!"- lance Oct 25 2006
There you have it folks!
"I have no idea what the rest of your rant is about."
She is just trying to argue that the real estate fairy will grant owners with riches just for living in their houses...
Obviously the bubble has nothing to do with that.
"nikki said:
"I hate to break it to you, but a couple earning $75K a year hasn't the means to repay a $500K loan using anything other thatn the collateral of thier home and the potential profits from selling it."
Nikki, did you even attempt to do the numbers before making this statement? I just did ... and you're wrong. An interest only loan at 6.50% would result in payments of $2,708 per month (or $32,500 per year)... and this is 43% of gross income add in property tax and you are at something like 45% ... That is still less than the 46% - 49% that most lenders use as the upper limit of acceptable. So, you're not comfortable with an interest only loan? Then don't buy that big of a house (or in that nice of a neighborhood) that you're going to need a $500,000 mortgage. Buy less ... but weigh the consequences of your actions. Personally, if I had to choose between the "comfort" of an amortizing loan and getting a lead-free house in which to raise my children, I'd pick the latter even if it meant doing an interest only loan."- lance oct 26 2006
Wow....just...Wow. I don't even know what to say to this. $500K loan with $75K salary...somehow justified. WOW.
Nova: I have no idea what Auburn Village is. Is it a ghetto? For a place within the beltway to have rented at KCK prices in the 1990s, it must have been in the slums.
The links. Click on the above links. That's what blue words with underlines mean.
Click. The mouse. Use the mouse.
novawatcher said:
"Keep in mind that I would have been looking at comparable places in both locations.
And that is the key to why you thought it was so much more expensive here to rent than in KCK.
You're not in Kansas here ... You don't have miles and miles of open land backed up by prairies to one side and near-empty valleys to the other. Comparable places here don't have the same square footage as those places out there. Comparable places here might not come with parking like out there. Comparable places here instead have easy access to restaurants and more importantly they have access to better paying jobs. I suspect you were here looking to find a 1,500 square foot 1/1 here like what you could get there and wondering why it cost "so much more", when if you'd been looking instead for a more standard 700 square foot 1/1 you'd have seen that it cost maybe 20% more than what you'd paid out there ... And that you wouldn't need those extra 700 square feet since here you'd have too much to do on your time off to sit around pacing the extra square footage you could get in KCK. You're not in Kansas anymore.
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