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Wednesday, August 27, 2008
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40 comments:
Any predictions about what the August sales (for the Decade of Sales) will show?
The only prediction I will make is outer counties will again beat YOY sales records, and the inner counties will not. If Contracts and contingents are any guide Alexandria likely will look abysmal and will struggle to report 150 sales.
Also, on the price front, the I still think Arlington could post a big drop - possibly 2nd worst after PWC. Again, the reason I say that is because last August Arlington posted an absurd +25% price gain last August. I dont see any way it doesnt give all of that back this month.
N. Arlington properties within walking distance of Metrorail in the Rosslyn-Ballston corridor will continue to do just fine. Some are/will show price increases, some will show small declines, but overall this niche market is in good shape and will continue to be so. Why? Among the many reasons are location, since the premium commanded by walking distance to Metrorail in this area is higher than ever, what with sky-high gas prices and the never-ending traffic nightmares that choke the main roads and farther-out suburbs.
Yawn.
In Tom's never,never land prices will have held steady (down only 1-2% MoM) but inventory will be up 10-20% MoM, meanwhile within walking distance to other metro stops, say at the ends of the yellow and blue lines in NoVa, prices will continue their plummet, down 10% MoM from July, with inventory flat or rising. The surprise hit will be that not a single home in the $375-550k range will have sold in Franconia Springfield, as every last property in this bracket is currently overpriced relative to the low-side neighboring price brackets which have seen staggering declines.
If home-debtors can write wishful thinking predictions I can write them too if I want to.
As someone who has lived in the DC area for over 25 years, I've been reading this blog for the past few weeks, great insight and wealth of opinion, so I'll jump in with a prediction, especially after reading todays wtop's article on household income in this area:
"The region comes in No. 2 in median household income, with 10 of region's counties in the top 20 nationwide. The region's median household income of $83,200 is 64 percent above the national average of $50,740"
Arlington, Fairfax and Loudon county are even higher, so I am unfortunately begining to see the ever-price-optimistic Tom's (and a couple of other poster's) views about SOME areas not taking a large hit, due to the high income/low supply of "quality" housing near DC and Metro.
Since I am also looking to move out of 22152 and into Arlington or OT Alexandria, I have watched with frustration outlying areas continue to drop (my condo included), while properties in close-in areas reamin stubornly high. As for sales for August (and the rest of 2008), who really cares what the VOLUME of sales are, versus what prevents many people on this board (myself included), from moving closer-in - PRICE. So I'll have to throw in my hat with Tom's prediction, and agree with the prices, not much change for Arlingon and OTAlexandria :o(
The bigger question in my mind is how will contracts and contingents look in August (i.e. September sales). It was about last september/october that close in sales really started grinding down. They are currently on track to match their YOY sales numbers soon, possibly as early as september - (i.e. this is why I will look closely at august contracts and contingents).
That said, credit has gotten a LOT tighter in the recent weeks. A number of programs have been shut down all together, and the continuing convulsions of fannie and freddie could really tear up the market (call it the credit crunch part II)
As I see it its very possible we could see another whole wratchet down in sales - not because of lack of demand, per se... I just think its possible a greater percentage of contracts and contingents fail than is currently the case.
If this is true, we will best see it in the outer counties that are currently beating YOY sales and contracts and contingents. If this is true, I think contracts and contingents will continue to be up YOY - however, as more contracts and contingents fail, sales will no longer beat last years numbers.
The next few months will be very interesting IMHO.
PBJ wrote: "So I'll have to throw in my hat with Tom's prediction, and agree with the prices, not much change for Arlingon and OT Alexandria."
Thanks, PBJ. I admit, it's not good news for folks looking to buy in the desirable areas of Arlington; I simply call 'em as I see 'em.
CRT wrote: "That said, credit has gotten a LOT tighter in the recent weeks. A number of programs have been shut down all together, and the continuing convulsions of fannie and freddie could really tear up the market (call it the credit crunch part II)."
You're right, CRT. However, I don't think the credit tightening will affect N. Arlington much. Folks who can afford to buy there are among the most creditworthy buyers around. On the other hand, I agree with you the crunch could produce new pressure in other suburbs where buyers are simply not as creditworthy.
pbj,
Apologies for the repetition, but just because we make more money doesn't mean we have to put up with putting a higher percentage of that money into housing than the bulk of the rest of the country:
from your WTOP article
The report does not factor in the cost of living in the Washington area, which is the fifth-highest in the nation.
So yeah, those are high incomes, but without move-up buyer power, they do not sustain N. Arlington prices, and a chunk of those move-up buyers are seeing their "investments" tank. Which is why I predict that the leading indicator of inventory will start to head up in August and September and be reflected in prices in the near future.
cara,
I understand your point, but realize that DC has the SECOND highest income levels, and FITH highest cost of living, I guess that still makes us ahead of the game? (sorry, being a bit sarcastic here).
I am as frustrated as you (and most people who are looking to buy a house) are, but there is a huge amount of wealth in this area, and many of the people with that wealth are looking to Arlington, Great Falls/McLean, OTAlex to live.
The housing stock there is older, not much new construction compared with the burbs/ex-burbs, so the sales volume will be naturaly low, I do not see that as a sign of a weak housing market. What the frustration here is that these areas are not "following the numbers" of the nation and region, but are staying high, but as tom has eluded to (but not said outright), people with money want to live in the "nice areas" and "close in", and are willing to pay the price, because they can afford it. Maybe an analogy would be the automotive industry - domestic automakers with "average" cars are not selling, prices and demand dropping, but there is still a waiting list for the new Ferrari models - out of reach for most of us in the market for a car, but if you have the money, and are willing to spend it...
PBJ,
Yes, we are probably better off than at least 4 other cities. (that San Fran and San Jose were counted as distinct should worry you...) But being better off than San Fran and NYC is not exactly anything to write home about.
The thing is, comparable areas in MD, like Bethesda and Rockville (which trust me are just as close in given NIST NIH FDA etc. and the red line which is way better than the orange to ride) are getting smacked. They've been hurting badly all summer. Thus my feeling that it's just a matter of time. Rich people don't get rich by paying too much for decling assets. They'll wise-up soon enough and start waiting for better value too. Right now, there's just too much kool-aid still floating out there. This blog's attitude is far far more negative than the general populace. People at my work are incredulous that I'm not buying yet. Why? Because they don't need to buy themselves, and they bought back in the flat period of 1992-1998, so can't comprehend that buying is not a good idea, especially after there have been price drops. So, my prediction is that those who are buying now are doing us all a favor by allowing the market to continue to function and taking themselves out of the buying pool for the next 3-5 years. The more impulsive, "we're immune" buyers get out of the market the better.
(and they certainly don't get rich by paying for decling) Sorry for the atrocious spelling.
Cara,
I think you have just stated an interesting point - many people who bought in 1992 to 1998 in Arl, OTAlex, MCLean, ... paid relatively "fair/affordable" prices back then, maybe even the magical 2.5 to 3.5 times income. But I have a feeling most of them bought the place to LIVE IN, not to flip or speculate, so as long as they have their job/income, they have no need to sell, and are happy where they are (tom, wanna chime in here?). People like me (who bought and held), and renters who want to buy, are now "priced out", and if they are not willing to settle for a place further out, are not going to be able to afford close in. I do have friends in Rockville, but as has been mentioned here before, Rockville is more like Fairfac County - some nice, close in areas, some way outside of Metro or a resonable commute. I have no idea what is happening in Bethesda, but I have a feeling if it is dropping, still extremely expensive (for example, so if what if McLean prices dropped 10 or even 20%, still out of reach for the majority of buyers).
They did buy those places to live in. And have very secure jobs. So yeah, they are fine and happy. But they will still freely dispense bs kool-aid talk to anyone who will listen.
My starting salary here is only 5% more than my boss's was when he started at my job 12 years ago. He bought a nice, recent construction 4 bedroom single family home with a nice lot in 1999. For $200k. Until I pointed it out to him, how unsustainable the prices had gotten to, he didn't really connect the fact that the price increase on his property to $600k was actually not a good thing. And in fact would soon be erased. Luckily he's smart and took the time to look into things and now agrees with my decision. But others just think I'm nuts.
"Cara said
The thing is, comparable areas in MD, like Bethesda and Rockville (which trust me are just as close in given NIST NIH FDA etc. and the red line which is way better than the orange to ride) are getting smacked. They've been hurting badly all summer. Thus my feeling that it's just a matter of time"
Cara - recall our discussion a while back wherein much of Maryland (which did not have flippers but had stretching buyers) is now looking a lot like close in VA did 2 years ago when our inventory was sky high.
The 2006 inventory spike in NOVA was the flippers headed for the door. All of NOVA took a hit at that time, while over on the other side of the potomac, they remained more or less immune.
When the credit crunch hit last fall, it hit everywhere simultaneously, last fall absorbtion rates started rising everywhere, Mo Co, PG, the whole US including in NOVA.
Its just that by this time, so much of the NOVA poison inventory had left the market with the flipper wave of 2006, there wasnt as much left to take the hit from the credit crunch.
Now as I speculated above, if there is a credit crunch part II, it could take out a whole new segment of the market. However, that is pure speculation at this point.
Secondly, even if there is a second wave, inventory must come back for it to have a meaningful impact. As it stands right now, there is just not that much inventory (relative to 2 years ago, and places like MO Co) to smack.
Incidentally, while on the subject, I feel compeled to report something interesting I found regarding this theory of inventory being low close in not because sales are sufficient to take it down, but instead more people are holding out for a better day.
It was theorized by some very smart bloggers on another site that if this were, inventory would never really "decline". Instead every time some sales took place clearing the market, more holdout sellers would step right in to the breach.
As it turns out, it looks like those bloggers theory was true. Heres a quote from Housing Wire to explain why national inventory in condos actually rose last month:
"The sharp jump in condo supply is telling — and suggests that despite historically high inventory levels already being recorded, many would-be sellers have been sideline sitting and waiting for “better conditions”; condo sellers appear to have put their properties on the market in droves at the slightest hint that some properties were beginning to move."
http://www.housingwire.com/2008/08/25/existing-home-sales-post-gain-but-so-does-inventory/
Think about that for a second. Nationally, inventory is at at a record. There were some hints that it was starting to come down, but as soon as it did, these holdout sellers stepped into the breach, and kept inventory at its ultra high plateau.
Why is that not happening in arlington & alexandria? The answer I think is clear. First, there are certainly holdouts out there - im not denying that for a minute. But many of them are re entering the market and probably have been continuously since way back in summer of 06. Second, even with sales as pathetic as they are, and even with those holdouts re-entering the market, the sales are enough to take down the inventory. Translation, absent some other market disruption (i.e. job loss, terrorist attack, failure of fannie & freddie) that is currently not baked in, it looks to me that inventory is gone and is not going to rise again until it hits its natural breakpoint - wherever that may be.
crt:
my observation is that inventory just above my price range has gone up noticeably.
Sept is traditionally another peak in RE activities. I guess in the bubble-bucking N Arl, conventional wisdom on when to put your homes on the market still holds water.
we'll see when the numbers come out.
Cara, PBJ,
I read your exchange with interest. I tend to come down on the bearish side for prices (even in "Posh Arlington") for the following reasons.
Those people (like Cara's boss) who bought a home to live in in the late 90's, were the typical demographic of that area. Within a short time frame, they were priced out of their own neighborhood.
This is not the same as a octogenarian living in their home for 40 years who couldn't possibly afford it at "today's" prices. This is someone who could afford in year 1, and suddenly can't afford in year 2 or year 3. That's too fast. (Indicative of an asset bubble if you prefer.)
A housing bull would have to convince me of the driver for a demographic change in the neighborhood to persuade me "things are different."
Secondly, I consider real estate to be a giant pyramid. People talk of "move up" buying where you go from a condo, to a townhouse, to a SFH, to a mansion (more or less).
Well, as the credit crunch and outer lying counties have shown, the massive base of this pyramid has been rocked. I believe that as sales, prices, inventories of these lower levels of the pyramids work themselves out, their effects will work their way up the pyramid.
Premium neighborhoods will feel the impact the least, and will be cushioned, but they will feel them none-the-less and later in the cycle. Further to this point, is substitution. As the lower level is rocked, people will fill in the cracks in areas they may not have considered originally because of the chance of more for their money.
CRT has made a great point that there was not as much speculation and rampant inventory additions in the inner markets, so this is why they are not as distressed. However, I still think that these markets were able to ride the frenzy of the speculation. With all of the tear downs and McMansions, it is reasonable to argue that if Loudon or Falls Church commands 900K (an inflated price) then new construction closer in must command 1.5 million. Still an inflated price. And unless you can change the character of that inner neighborhood (see Cara's boss and his neighborhood brethren) then all you've managed to do is suck a few people into an over priced asset in a fundamentally unchanged market.
Sorry for the ramble. Just wanted to get some thoughts out there...
My $0.02
MM - you bring up a good point. For the past 2-3 years the close in areas have experienced a slight inventory bump in Sept & Oct. To be honest, I have no idea if that is normal or it is a bubble phenomena (my guess is it is the latter).
Either way, I dont see that as a cause for concern. That said, if inventory starts to rise over YOY levels, then we should all pay attention.
$0.02 - havent heard from you for a while, but as always, appreciate your comments.
I agree with you on the whole pyramid scheme of real estate. However, I do wonder where arlington fits into that scheme.
With as small as much of the housing stock is, is it really the move up market? If anything I could see the reverse where the DINK couple who lived the "posh" life in arlington, now decides to move out to Fairfax with its bigger houses, yards, schools, etc. once junior arrives.
On the other hand, perhaps it is the final desitination of that same couple once junior moves off to college. If so, then your comments ring true.
If it is not however, it begs the quesiton, who are all these first time buyers who can afford arlington prices. Yes the 1st year associates we recruit could affort it, but who else? Is there any other group of fresh out of school types who could afford these prices?
I guess I am just posting random musings at this point. I do think Arlington is more of the new buyer versus the move up buyer market - I just wish I knew who these people were!
CRT,
That's the reason why I think prices will suffer.
The housing stock in 22207 and 22205, for the most part, are smallish homes that I think most would consider first time home purchases. AKA, trade ups from a condo.
So these should be on a lower level of the "housing pyramid" yet they're priced at quite a premium.
Again, it comes back to demographics. If it is indeed all new high income 150k+ lawyer graduates than fine. I suspect though that prices were able to readily rise based on the bubble and that this zips will fall back in time. (Or more likely, just stagnate over the next 5 years.)
My $0.02
Could be $0.02. Look at the Case Shiller graph and notice how long prices remained flat around here after the 91 bust. I really would not be surprised to see prices stay flat for 5 years or more.
CRT,
I think the question you bring up of the effect of the credit crunch on turning contracts into sales is actually the most interesting one.
However, I suspect that it won't have a strong immediate effect, but rather a more gradual one. Reason being, once a buyer is on the line, I think every effort will be made to complete the sale, and a lot of the more questionable buyers have already been warned out of the market. Thus, while financing may fall through at a given price with a given bank, I think sellers will be patient, possibly giving up 10-20k in price if that will make it match the appraisal, and there are plenty of other banks dying for new performing loans ready to step up if one bank falls through. Plus by the time an offer is in and accepted most buyers are already semi-attached to the home, and only a few will take the fall-through on the financing as a way out of the deal. The segment that will be unable to take advantage of this is short-sales, but those are always problematic. REO's often the buyer will get a better deal with a mortgage from the bank that's selling the property (even if that should cause the buyer to pause, in many cases it won't). While I do think there are still knife-catchers out there willing to pay today's prices, I think people are more forced to be realistic about the financing aspect, such that the credit crunch's impact will sort itself out before the contract not after. So it will effect the number of buyers, but I think it will be marginal in terms of the contracts to sales conversions. I'll be impressed if I'm wrong though.
Very very interesting point about the condo owners jumping to put theirs on the market once a sale or two happens!!
My $0.02, glad I wasn't just being shrill. I feel as though I was getting a bit, mmm, petulant at the end there, so I'm glad someone else appreciated the back and forth pbj and I were having.
crt, from your last comment on Arlington zips "...I suspect though that prices were able to readily rise based on the bubble and that this zips will fall back in time. (Or more likely, just stagnate over the next 5 years.)"
You seem to analyze the numbers and other blogs more than most, is your suggestion that Arlington will just stagnate for the next few years (i.e. no bubble)? Unfortunately for me and other potential buyers, I am starting to think the same, although my reasoning is based on more casual observation/listing browsing.
pbj,
I know you asked crt, but...
Stagnation is not an indication that there was no bubble. It's just a different method of deflating it, using inflation rather than price declines.
Stagnation, aside from the lack of a nice good price cut at the beginning, is also not a bad thing for buyers. It means that you can buy your house when you want to, when the timing makes sense for you, and not have to worry about the market. It means that the equity you put in in terms of a downpayment and that principle portion of your mortgage payment won't evaporate. It might not keep up with inflation, but you won't need to bring money to the table to sell your house. It means you can buy your house because it's where you want to live, not because of its position in the housing ladder or pyramid. Stagnation is great, stagnation is freedom.
Of course I also do think there will be a little more true deflation of the bubble first, so I'm not worried about that aspect. And where I'm wanting to buy, because it's where is convenient for me, I don't actually need much more deflation to happen to get the kind of housing I want.
PBJ - I think stagnation is a possibility but not the most likely outcome. But it is just one of many. If I am forced to make predictions, I often like to assign probabilities to different outcomes. Subprime & Alt A implosion, the credit crunch, sluggish economy, I think thats all baked in. Thus, assuming nothing else happens (i.e. the collapse of fannie and freddie, massive job loss, hyperinflation, etc) my prediction for Arlngton would be as follows:
15% chance of no more price drops followed by 5 years of stagnation
40% chance of a 5-10% decline this year followed by a 0-5% decline next year, followed by 2-3 years of stagnation
10% chance of a 5-10% decline this year, followed by a similar or greater decline next year, followed by 2-3 years of stagnation.
35% chance its none of the above and I have no idea what I am talking about.
crt and cara, thanks for your comments and insight, unfortunately, stagflation of housing prices will not help my situation, since my salary (and that of most others these days) is also "stagflating", any raises/bonuses are more then offset by rising food/fuel prices.
Well, pbj, let's hope that you are just one example of the reason why prices will fall in the close in areas. Because move-up buyers like you can't move-up unless the spread in prices drops down to realistic historical levels. Such that your X years of principle payment equity is sufficient to get you into an affordable mortgage on a moderately more expensive home. I think the bulk of potential buyers in N. Arlington are like you, and thus my confidence that sizeable price declines will occur prior to some years of stagnation. I think the rich lawyers are looking at the 800k and up market and are thus virtually irrelevant for the dated SFH market (regardless of super-duper-upgrades)
cara,
this brings us full-circle to my original comment - there are plenty of people in NoVA who CAN afford current prices in Arl, OTAlex, etc, and so far, have been willing to pay those prices, since there have been minimal price declines in these areas. Maybe some are waiting for prices to drop like the surrounding areas, but if push comes to shove, someone making $200k+ a year can go for a TH/SFH for $800k, 2 bedroom condo for $600k, etc without too much stress/hardship. Yes, median incomes of $80 to $100k cannot, but remember, median means there are 50% of households making more than that.
pbj, don't forget that many (most?) buyers are not first time buyers. Your $200K buyer who also has, say, $500000 in equity to play with from his/her present house, can afford considerably more than an $800K townhouse/SFH - IF he or she can sell his/her current house.
pbj,
I guess I'm just way more risk adverse financially than that. If 1 income is clearing 200k, by themselves, then I'd agree that doing the 4x income stretch for the home, or the 3x income stretch for the condo is probably not financial suicide. But if it takes 2 incomes, (and we are talking median household income here) then personally, I think stretching to 4x income is asking for stress and trouble, and 3x income is an awfully optimistic outlook.
I mean, I know my perspective has been warped by 6 years of grad-school scrapping by, 5 years of itinerate postdocing, including 1 year of negligble income for my husband (while we were still paying off the tail end of his car loan!) followed by grad-school stipend for him. And now we're saving like bandits. So I really haven't acclimitized to our current comfortable income, but these years of debt, digging out from debt, and under-employment, shape what I'm willing to put towards an illiquid, high-carrying-cost asset like a house. And increases my love of the freedoms of renting.
It could be, as I usually find it is, that my attitude is the exception, and far from cultural norms. But unless Arlington is Chevy Chase or Foggy Bottom level of poshness, which it doesn't look like based on the pictures, I think your time will come. Because honestly, if we were pulling down a solid 200k? There's no way on this green earth that we'd settle for a dinky SFH in Arlington while stressing over the price.
pbj: I would argue that there are not nearly as many people as you think who can afford those prices. Inside and outside the beltway, the number of housing units has increased faster than the population. Likewise, home prices have increased faster than wages. Combining those two is a recipe for disaster.
"Cara said
It could be, as I usually find it is, that my attitude is the exception, and far from cultural norms."
Cara - Let me put on my amateur psychologist hat for a moment, and give you a piece of unsolicited advice which (like all unsolicited advice) you are free to immediately toss this into the ole circular file:
I know a guy who has been renting, yet looking to buy for 11 years now. Even back in 1997 he was concerned he just couldnt swing it on his salary, the market might go down, etc. In sum he is just an extremely risk adverse person - thats just his nature.
The problem is, there are a number of other potential buyers out there who are more risk tolerant than he is. Thus, he would focus on a target house (usually one with problems and thus declining), pull out a number of rent to buy and income to price calculators, and wait for the price to drop far enough to meet his comfort level, and then buy.
The problem was, before the price fell to his market clearing price there was someone else willing to buy it at its then current price. In sum it was always going to someone else a bit more risk tolerant than he was.
He was also stunned by the attitude of other buyers he knew. Many of them did little to any research. For them, it was simply a matter of (a) can I afford it (b) can I swing the monthly payment and (c) I going to stay here long enough to where I am likely to get my money back or make a bit on the back end. If the answer to all 3 was yes they would buy it period. None of them really considered the possibility of having to move, a job loss, disability, cap rates, return on investment, any of the things you should consider. For them, ignorance was bliss.
If I may, I think this is the attitude of most buyers you are competing with out there today. Moreover, even if things deteriorate significantly, I think the average buyer will still be more risk tolerant than you are (because presumably you will be even more risk adverse at that time too). Thus, long term, I think its its very likely that they still will outbid the more risk averse buyers out there.
I thus will give you the same advice I gave him (after his 20-25th "target house" sold). Either (a) when you are "ready" to buy recognize this about your self and be willing to take a bit of a flyer (i.e. if you can afford it go for it - end of story) or (b) recognize this about yourself and just not buy.
On that second point, there is an inherent desire we in the US have to be a "homeowner". Why? Why do so many of us belive we "must" buy? In many countries, people rent their whole lives and they seem perfectly happy. When I retire, there is a decent chance I will move overseas, and I promise you I will never buy - Ill rent for 20 years - no problem.
Personally, I believe we are a bit duped by our culture. When we got married, my wife wanted a big diamond, mostly because her friends had one. Well after she got it, the bloom faded. Now its like - its nice and all but we spent X thousands of dollars on a piece of rock and for what? I think homebuying is sort of the same thing.
Ok psych hat off and rant off now. Incidentally, I think you made the right move by renting for another year. I see no chance prices will rise and a respectable chance the close in areas will fall. However, if I was a buyer (and yes im probably more risk tolerant than you, but not as risk tolerant as many), if we dont see respectable price declines by next spring, my conclusion would be its "worth the risk" and I would re enter the market.
Just my two cents. Regards
good points, crt.
Thanks Ace. Same to you regarding the exchange with Kristina. I dont wish to rehash, but thought yours was an appropriate response.
crt,
I'm not quite that extreme. I know one of those too, but he's more of the happy to continue to rent and save money unless prices in Chevy Chase magical reach parity with prices in the outer suburbs of Detroit. Which since he's happy, makes sense to me. I mean really, with property taxes what they are, it's a falicy to think that eventually a house will be free and renting will be a continual drain. There are always costs to having a place to live. So, I'm much more keen on renting. I think the homeowner mantra is somewhat a product of the "ownership society", but more just a product of the small southern and midwestern towns where the holding costs of houses aren't that large, and there just aren't that many places available to rent.
I will admit however, that I refused to let my husband buy me an engagement ring. But that's the feminist side of me too. We both have wedding rings, I didn't see the point.
Barring unforeseen circumstances we'll be buying next summer, but the way I will compensate for my risk adversion is to get something smaller that we can afford a 15 year mortgage on, and use the 30 year as our version of an option-payment loan. Good thing my size scale is set by cottages in Oak Bluffs, MA. Too bad my husband's isn't. He'll help balance and make us get something "reasonable".
thanks, crt.
I will be very interested in seeing those August sales.
Cara said: "There's no way on this green earth that we'd settle for a dinky SFH in Arlington while stressing over the price."
Would you settle for a "dinky" apartment in Manhattan?
Because, without stretching the analogy too much, that's the main reason N. Arlington is so expensive: location. If that "dinky SFH" is walkable to Metrorail on the Rosslyn-Ballston corridor, its price will command a premium that, relative to the other NOVA suburbs, is constantly increasing as growing numbers of NOVA residents battle sky-high gas prices and never-ending traffic nightmares. That's a major reason why the "substitution effect" doesn't apply to such N. Arlington neighborhoods.
Tom,
Who buys apartments in Manhattan? I mean really who? Why do you think the NYTimes constantly writes about those buyers? So they can feel good about their insanely expensive apartments.
But seriously, no, I wouldn't buy in Manhattan. I choose not to live in the NYC area for a reason. I actually wish I could live in SF, but don't because don't want the accompanying stress of the cost of living there. Substitution is real. Some of us even move into another area entirely, like cpa1.
I think you overestimate the cost savings in gas. (try doing it as gallons per 100 miles, rather than miles per gallon, it's much more illuminating in terms of real cost) I also think you vastly overestimate hoe many people are N. Arlington specific. I mean, I'd choose Bern, or Brussels or Paris, or okay maybe not Venice too stinky, and too sinky but you get the idea. And, remember, as has been brought up before, most people do not have school age kids, and even fewer people who can get approved for the balance on a 600k house or TH have kids or are planning to in the future. Without the school district aspect, a lot of other nice areas in D.C. are opened up as options. And for the really rich, they can afford private school, and it's totally moot.
tom,
The "substitution" effect is ALWAYS there. To deny otherwise is to be completely ignorant of basic economics. It would destroy the foundation of the entire economy.
If the substitution effect did not exist then Arl would either have a price of infinity or 0.
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