September sales were up year-over-year in every county we follow here, and prices, of course, took a hit.
Standouts from September: Prince William County YOY sales up 221% and at a 10-year record, median price down 43%, inventory down to under 5 months'; Fairfax County sales up 72%, median price down 25%. Fairfax County's inventory went to under 6 months from over 11 months one year ago.
Obviously, these sales were prior to the recent Wall Street meltdown. Confidence, availability of cash, employment, and credit availability will likely factor into the coming months.
Source: MRIS
Friday, October 10, 2008
A Decade of September Sales
Posted by Harriet at 10:00 AM
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29 comments:
So approximate median price levels are
Arlington: 2004
Fairfax, Loudoun: 2003
Prince William: 2002
I think it's fair to say the PW has probably bottomed out.
Actually Arlington is very close to 2006 pricing, much closer than 2004.
Initial comments.
Well - that looks like thats it for the correction moving in theory. With Alexandria beating YOY sales, every county has hit every benchmark. For the past 3 years, all of them have been on the same roller coaster ride. Every single one of them has now had (a) rising inventory (b) falling sales (c) price drops (d) falling inventory and now (e) rising sales.
To be sure - there was a bit of a lag between inner and outer counties, but it was a matter of months - not years. Inventory never rose again, the wave of "hold out" sellers never materialized - the inner counties never had the critical mass needed to see a rout in prices the way we have seen beyond the beltway.
It makes sense though - we learned months ago several things about the bubble. (a) there were more flippers the farther out you went (b) there was a greater concentration of junk loans the farther out you went (c) gas prices did make a difference, at least at the margins.
To be sure, the lack of a corresponding rise in incomes is a curious paradox, and I really have no answer for that. We have a number of decent theories (gentrificaiton, etc) but little proof. At the end of the day, the only thing I can say is if it hasnt happened after 3 years, its not going to happen.
NOW - THAT SAID. This is a pyrric victory for bulls at best. In the last month, we have seen far more destructive macro economic forces at work than we have seen in the last 3 years combined.
Going back to my post the other day, if the market selloff is indeed panic - this may be it - no more big corrections in housing are necessary. It will be a very rough winter no matter what, and sales could really fall apart. However, sellers can likely hold on that long, and if with 4-6 months of clarity, it looks like the markets have at least stabilized or recovered a bit, the buyers will be back. In this case, starting next spring, my gut says all areas see flatness or milder price drops.
HOWEVER, if this is not panic, but the pricing in of deflation (at least short term deflation), nowhere is safe. Prices will fall everywhere and the price drops could be pretty hefty. In this case, things like months of inventory, sales, etc. are of little consequence. Deflation will win the day, and next year could be a rout (but a rout for everywhere, not just inside the beltway).
Bottom line is, while I feel cofident in saying all areas are all in this together now, its way to early to say its over. If this is just a panic, in 6 months we will be looking pretty good and the bottom is in. However, if this is deflation, who knows how bad it could get. If it is deflation followed by inflation (which very well could happen given that DC currently as of Oct 10, 2008 truly is the center of the universe) there are going to be some truly good deals that will very quickly disappear.
No matter what, this is not a market for the timid. If I was a 10+ year buyer, I would probably buy soon. But if my time horizon was shorter than that I would still be waiting, waiting but watching the larger market forces closely as it is really difficult to tell what is going on right now. The first phase of the correction is over, who knows what phase 2 will bring.
inventory is growing in 22207
YoY 2008 2007 % Change
Avg Sold Price: $ 773,919 $ 858,076 - 9.81 %
Med Sold Price: $ 723,000 $ 715,000 1.12 %
Total Units Sold: 21 37 - 43.24 %
Avg Days on Market: 119 54 120.37 %
Total Active Listings 152 140 8.57 %
Total NEW listings: 69 57 21.05 %
MoM Sep 08 Aug 08 % Change
Avg Sold Price: $ 773,919 $ 796,608 - 13.58 %
Med Sold Price: $ 723,000 $ 750,000 - 5.90 %
Total Units Sold: 21 50 - 58.00 %
Avg Days on Market: 119 64 85.94 %
Total Active Listings 152 135 12.59 %
Total NEW listings: 69 37 86.49 %
Nice, Fairfax down 25%. This quote from lance in November 2006 is quite funny (even more now than it was when he first said it):
"I also believe [prices] won't go down much (if any) in the midterm(i.e., prices 3 - 5 years from now will be no lower than they were at their height) and in the longterm (i.e., 5+ years) they'll be rising again at normal rates of appreciation." - Lance, November 30, 2006 7:21 AM (from bubblemeter)
shamrock,
It may be 'fair to say it', but the situation on the ground is quite different. Inventory is still too high, and there's still a backlog of inventory not hitting market here in PWC. On my nightly walks I still can count three failed home auctions.
The stuff will sell, but price declines are going to continue. PW has not bottomed out yet. Maybe this time next year.
Clear message from data: expect average price declines to continue in all counties. Look at the sales to listing ratio- above 4 everywhere! Even if sales have gone up in some areas, that doesn't mean the declines are done. Even Arlington - look at its sales number - a +5% yoy increase vs. -74% decrease since 1998.
PW has gone through most correction, but it is not at bottom. This doesn't mean that this is not a good time to buy. A well priced house in great condition in a good location zips off the market.
There are buyers out there, but they are wary of sellers living in lala land with their price expectations. Many, many sellers have been in their houses since 2000 or earlier but still expect 2006 price for their house - e.g. a 1.5 - 2.0x increase. Sorry - not going to happen.
It will take minimum 1 year before this is done.
I live in a townhome community in Alexandria (Fairfax County), VA. Between when I bought in Fall 2003 and early 2007 about 3/4 of the purchasers had Muslim or Hispanic surnames. That is based on reviewing the sales listings in the Washington Post real estate section. About 75% of them no longer live in the community. These are facts and not anecdotal observations.
The peak sales price was back in middle 2006 of around $465,000. Now because of the "fire sales" it is around $310,000. That is a 33% below the peak. The worst drop previous to this was during the Depression when prices plunged 30%. On top of it all the average household income (for now) is $105,000; so the ratio of price to income is around the historic level of 3.
Now the stock market is at valuations that indicate significant undervalue, and at the same levels in 1997!!!!!! Three words to describe October's behavior: EXTREME IRRATIONAL PESSIMISM. The Sheep are getting led to slaughter and the royal family/sovereign growth funds are buying up the shares.
MM - If I recall correctly, we had a $1 bet on 81 new listings in 22207 (I look the under). It looks like I won and now we are even (thank god, debt in a deflationary environment sucks :)
Xpovos - regarding the failed auctions you are seeing. Are these regular homeowners trying to sell (via the auction process) or are they foreclosures that didnt sell at auction?
Blacksilver, I wish you, the rest of the bloggers and the media would discuss fundamentals. What is the median price to the median home income ratio? The current value is around 3.3. The historic value is 3.
Perhaps you don't want to discuss such data because it doesn't suit your interests.
Anthony: it was 4.7 as of 3Q-2007, meaning that the prices in the area would need to drop to 64% of their price to come back to historic levels.
Have houses lost 1/3rd of their price? They have in some areas, but not in all. I can point to some areas outside the beltway that are only 10% off peak and are selling for 75% over 2002 prices.
I do expect those areas to catch up to fundamentals, but the weakest always fall first.
http://www.housingtracker.net/affordability/dc/washington
crt,
Bank owned mostly, I'm sure. I've only seen a handful of private owner-initiated auctions even here. Those I have seen didn't sell either. Even with reserve prices the final bid wouldn't make them whole.
anthony: novawatcher replied with good data that shows fundamentals are still out of whack.
I'm happy to discuss such data. Let's assume your data on the price/income ratio is right: 3.3 now vs. 3 historically. Well, thats 10% more we can fall until fundamentals are restored according to you. Check out this WSJ article that was discussed earlier, it claims a 26.6% decline needed for DC area.
But I would be surprised if we hit bottom without going below so called fundamentals. The most important fundamental is "supply and demand." There is too much supply and not enough demand - that is what the data shows. If stocks can go below fundamentals in bear markets why can't the same happen to housing?
Can we get data that separates out SFH from condos and townhouses? I'm curious if the price and sales declines in SFH are same as for condos/townhouses.
crt,
Why would holdout sellers have entered the market place in September or in any recent month past, as you seem to imply? There could not be a worse time to put one's house on the market if one doesn't have to sell than the past six months (or more) and the upcoming x months.
Consequently, there are likely many sellers still on the sidelines, and they will remain there, until forced to sell or there is significant positive change in the financial economy.
slightly off topic..I returned from las vegas and the local news reported that 54% of home owners are upside down on their mortgage.
exlcuding 1mm+ homes and the statistics are far worse.
sounds like prices in LV will fall further...especially as business and entertainment travel slows moreso.
Ace - I agree with you 100%. I always thought there were holdouts, I just disagreed as to how stressed they were and whether they had to come back in the bubble or not. Let me clarify:
This spring, when it was noted that inventory was not rising YOY, it was assumed by some (not by you but some) that this was a temporary matter. Inventory was not truly going down, it was just more and more sellers were holding out. It was further assumed, these guys would return and YOY inventory (especially in softly hit inside the beltway areas) would rise again. In sum, the argued, the holdouts couldnt hold out long enough - YOY inventory will again rise.
I have always disagreed with this noting (1) with supply/demand inside the beltway being only slightly out of whack, there could be enough sales to where inventory is being taken down natrually.
Second, it was long hypothesised that if there are holdouts who really really need to sell, the moment some inventory sells, these holdouts step in, fill the void, and inventory doesnt fall for a while. That is exactly what happend on a national scale this summer. However, since that didnt happen here, its fair to assume these desperate holdout sellers dont exist.
Again, there are holdouts, and they will probably remain on the sidelines for a long long time. Some do enter the market, and have been doing so all along. However, have there been enough of these to cause YOY inventory to rise again. The answer is no - thats all I was trying to say.
For the relative newcomers to this board, here is an inventory chart with respect to what I am saying
http://www.recharts.com/nova/nova.html
Again, Maryland doesnt look like this, Nationally doesnt look like this. Most areas are close to their all time peaks now, not so for NOVA. This area had its peak in mid 2006 and never looked back.
Also, its not just outer counties that are going down. Inner counties too. Like hard hit loudoun, hardly hit Alexandria looks to break below 2005 inventory levels soon. That would mean inventory is down YOYOYOY for those of you scoring at home. The other areas look to test those 2005 levels.
THAT SAID, as I noted in my first post above, this is all ancient history as of this last month. If the wall street distress is as bad as I fear ALL areas sales will evaporate and ALL area inventories will rise. If the distress is as bad as I think, this will be the first place you see it.
In any event, I see no evidence of this distress yet. I take this chart for what it is. In a vacuum, this chart clearly suggests we are all a lot closer to the bottom than we think. In reality, however, I think it would be foolish to claim that - not with the turmoil out there today. We shall see.
Regarding " EXTREME IRRATIONAL PESSIMISM"
If you do a page-by-newspaper-page review of the reporting in the months that followed the crash in 1929, it becomes immediately clear that the full realization of what was happening was still months away.
I looked up a little research I did on New Britain, CT., a city I wrote a history book about many years ago. Here are a couple of factoids from that period for this city that I think say something about today:
Manufacturing employment fell 30% following the 1929 crash but it took four years to reach that point.
The only data I have on housing prices is in 1931 when they were off 20 percent -- but that represents less than two years of decline post 1929's crash.
But, while I don't know what happened to housing prices, I can say that building permits were showing decline two years leading up to the 1929 crash. But this decline, at that time, wasn't in any way alarming. Building permits continued to decline until 1933 when only 50 were issued for the entire year, a tiny fraction of prior years.
It wasn't until 1936 that recovery began, and what recovery meant was marginal upticks in some basic indicators.
Now, I realize there is a world of difference between then and now. But I will make these observations:
-- In 1929-1930 people had no idea how bad it would get. Our only advantage today, is we know what happened then and at least have that lesson to turn to. But it's hubris to believe this knowledge gives us predictive abilities.
As in 1930, the declines today in basic indicators began gradually over a period and then accelerated, hitting bottom around 1934, but the building permits are one indication that this decline actually began two years prior to 1929. For our time, signs of a faltering housing market were coming into view two years ago.
My point is this: We have no more understanding of what's ahead today than the people in 1929 did.
Even if the housing data is showing some stability it may be short-term, like the steady float of something just before it goes under.
xpovos,
I agree with you completely that the PWC numbers are not the full story. In my little neighborhood, there are five foreclosures (including the house next door to us) that have been sitting vacant for months, and only one is active on the market right now. I know another military family around the corner that needs to put their house on the market soon. Many "contingency" contracts end up back on the market again, and 40-50% of contracts are contingency in my zip. And foreclosures continue to happen in greater numbers: a Post article recently stated there were about 50 foreclosures in 2005, about 300 in 2006, about 3400 in 2007, and just under 6,000 just as of August this year in PWC.
Houses that sold this summer went for 40%, 50%, and 60% (August) of what they sold for same month last year in zip 20110.
I have also seen countless failed auctions around town, still vacant, still sitting.
Then there are those people, like some dear friends of mine, who have drained savings and borrowed from family to stay current on their ballooning mortgage payments, but have reached the end of their rope. With the economy as it is, there may well be more people who lose their grip on the precipice.
Median sale price county-wide is down to 2002 prices, but in Manassas, it is down into the late 90s, and people are only getting 80-85% of asking.
We hope to buy this year, or early next, if we can still get a mortgage. If our landlord agrees with the price we are comfortable offering for the house we are currently renting, I think we'll be in a good way. But I am certain things will not improve here for a long time to come.
tabitha,
Another Manassas anecdote:
My in-laws bought a foreclosure property about a year and a half ago. Their next door neighbor passed away in the past few weeks. There's a long story there, but it's irrelevant to the bottom line. Ex-wife 'wins' the house out of probate and takes one look at the mortgage situation and immeidately mails the keys to the lender. This was about 3 weeks ago. House has been vacant since with absolutely no signs of any activity, realtor, lender, or other.
My guess is it's caught up in a huge tsunami of paperwork.
crt: Your charts show different information than the MRIS data that started this thread. Example:
Fairfax county September listings - MRIS
7,106 (08) vs. 5,165 (05)
ReCharts(VirginaMLS)
6,000 (08) vs. 4500 (05)
Different sums of subareas maybe? But trend is not different.
What these charts don't show are the trends in more normal years. 2005 was not a normal year according to the MRIS data that started this thread.
If we look at, say 3,000 listings as normal for Fairfax Country in Sep, then 2005 levels are far above normal. Demand will be depressed in future due to the stricter rules for mortgages, therefore calling 2005 inventory levels a bottom doesn't make sense. Even as inventory corrects, prices will continue declines. Holdout sellers (and I include those who already listed but haven't dropped price) are hurting themselves, they could get more now if they were more reasonable vs. waiting years. It is like Thain vs. Fuld. Thain accepted reality faster and sold ML in a good deal, Fuld stayed in denial longer and LB went bankrupt.
Shopping for a house should not require a buyer to hunt for the rare seller that is pricing to market. We'll know we've hit bottom when you can look in the market and it is the AVERAGE house you see that is a good deal. That is what equilibrium in supply and demand looks like. Today it is the exception and that is why you see some houses sell in days while others sit there for months. You CAN buy a well priced house today, but it is difficult because the market is still pricing too high, hence the low sales.
Perhaps this should go in the "bits bucket," but a family member who works for Booz Allen passed along their CEO's take on the economic situation, and there were a couple parts I found pertinent to ongoing discussions here:
"This downturn originated almost entirely in the U.S. financial markets. Essentially, cheap credit from the U.S. Federal Reserve fuelled an extraordinary leveraging of the U.S. economy over the past six years. Its locus is in consumer debt, especially mortgage debt. The original sin was not in (the lack of) regulation, but in the expansion of credit with outrageous terms to un-credit-worthy people—for example, 105% “Loan to Value” loans with no credit checks. The willingness and ability of regional and local lending institutions to then package and re-sell this debt (as "collateralized debt obligations"), first to the big U.S. banks (who in turn used debt to buy it), and then ultimately to parts of the global system, freed up those banks’ balance sheets so they could go at it again. The overall cycle was predicated on the notion that the purchase of the debt would produce a perpetual stream of repayment income against secure collateral—for example, that the real estate market would always rise...
As many have noted, the larger system fell apart when (inevitably) the U.S. real estate market began to decline. For the primary originators or the resold obligation owners, the assets’ values were below the loan values. More importantly, if a major function of packaging is to create lower risk pools because of aggregation, this only works if they are not collinear. In other words, if all the bets are based on one super-bet—a bet on the U.S. housing market (or not so long ago, the Taiwanese, Korean, or Japanese commercial real estate market), the risks will be related as well."
Again, tell me how everyone in Northern Virginia lost their heads at the exact same time and in the same way?
blacksilver - you are correct about inventory. For some reason they never match up perfectly (no one here is sure why), but you are also right, the long term trend is correct (both of them trend toward decline).
I agree with you 2005 wasnt a normal year for inventory. The 2nd half of the year it was too high. At the same time, it was far too low for the first part of 2005. In that regard, I will ask you the same thing I have been asking here of everyone for months. Does anyone know what each county "should" look like - or would look like had the bubble not occurred? I dont know but I wish i did.
I agree with you 100% that housing prices will continue to decline. The thing is, will the rate of declines ever match the declines outside the beltway? The only way you get there is (a) despite the tight turn times on months of inventory, the prices suddenly go from mild declines to big ones. or (b) inside the beltway mild declines continue for years after the rest of the area has recovered. I believe a third option. For whatever reason, the pricing during the bubble was more driven by a true demand, therefore it will retain more of its bubble pricing on the way down.
I dont think you were an active contributor on this board, but we have discovered many things that tend toward this thought of mine. For starters, when it comes to flippers, sales records during the bubble years indicate they were far more active outside the beltway than inside. Outside the beltway some of the price increase was flipper selling to flipper to flipper. Inside the beltway, (amazingly even in the condo sector) County sales records indicate far less of this happened.
We also know that the building ouside the belway was far more overdone. Close in, you had very few choices other than to go vertical (condos). Farther out, you had the option of going out or up. It loooks like they did both.
We went through this with the ALT A loan reset wave theory too. It was assumed the ALT A loans were more common inside the beltway, and that would bring the close in prices back in line with outside the beltway prices. Problem here was we later learned - the concentration of ALT A loans was 2-3 times as heavy outside the beltway than it was inside the beltway.
Also, if you look at foreclosures by county there is a huge difference by geography. Even when adjusting for population we know that outside the beltway counties are suffering with 4-10 times as many foreclosures per household as the inner counties have.
Finally, its helpful to look at the most accurate measure of supply & demand (months of inventory). In the bubble days, every county had 1-2 months of inventory - way too hot - clearly a bubble.
In 06 that all changed. Far out counties went to 7-8 months of inventory - close in counties to 4-6 months of inventory (this led to the "its moving in" theory by the way).
In early 07, Far out counties went to 10-12 months of inventory, while close in areas stayed at 4-6 months.
In late 07, when the credit crunch really kicked in, far out counties went to 12-18 months. Inner areas felt it to - they went to 9-10 months. At that point, I thought - thats it, they are dead, it really is "moving in"
Early 08 a funny thing happened. Inner counties did not follow outer counties on that path to doom - instead months of inventory improved. Even funnier, outer counties started following inner counties, and now they are once again very close to each other 4-6 months of inventory across the board.
Problem is, the long sustained periods of 8-9-10 or more months of inventory did the outer counties in. A critical mass was reached, the rout was on - one that continues to this day.
The final theory that was advanced was even thought months of inventory is pretty tight, inner coutnies have never beaten yoy sales. Well thats now not true either.
Again, all I am doing is rehashing everything that got us to this point. In a nutshell, these are all the thoughts & theories that were running through this board for the last few years.
Going forward, I think price declines are the order of the day but its more due to large, global macroeconomic factors than anything else. But do I now think the inner vs outer price trend of the last 3 years will suddenly switch? After 3 years of theories on why "this will do it" or "that will do it", and none of them panning out, Im not inclined to now switch my position.
tabitha: great summary from the Booz Allen!
crt: I don't know what a normal year of inventory looks like either but we agree >4 times listings to sales is a sign of sickness. We agree a lot more than we disagree. I agree with you that inside the beltway is different from outside.
I am a new contributor, but long time reader. This blog has a great signal to noise ratio.
CRT: I know we've looked at it before, but I still can't believe that there were more flippers outside the beltway. I know that the numbers point to a different story, but I have a feeling that we're missing something.
Remember all of those stories about folks lining up around the block to buy a new condo? Condo conversions? Folks owning a handful of condos? Those stories weren't from Loudoun, they were from inside the beltway.
But, the numbers we dug up suggested that most of the flipping was in Loudoun et al. Having, said that, my gut tells me something different.
"Novawatcher said...
CRT: I know we've looked at it before, but I still can't believe that there were more flippers outside the beltway. I know that the numbers point to a different story, but I have a feeling that we're missing something."
I can totally believe it. For years during the height of the bubble I was househunting in arlington for myself and in loudoun with a friend of mine.
From the beginning I saw something strange. Out in loudoun for each couple looking at a house there were there were hordes of single men with clipboards - many of them seemed to know each other - comparing notes, etc. For the life of me I never knew who they were and what they were up to. Back then, I didnt really know what homeflipping was.
It wasnt like that in Arlington. I would see an occasional single guy with a clipboard, but by and large it was couples.
I had long forgotten about that when that day that you and CRT had that discussion about investors and sales records. Suddenly it hit me - you two nailed it - suddenly, all those strange things I saw years ago made sense. Maybe it was just me, but that was a real revelation moment I wont soon forget.
I think based on this data it is now safe to say that the market has entered a new phase. We are seeing undeniable signs that volume is returning in most areas which should mark the end of the stand-off phase we were experiencing.
That doesn't mean price drops are done however. Based on previous housing cycles we could see prices continue to fall for another 2-3 years. There are still far too many sellers holding out for prices they will simply never get.
I don't think it is safe to say the innermost areas are out of the woods yet. What I am seeing there is still more consistent with a standoff than anything else. Small price declines and tiny volume.
As others have already pointed out, the real wildcard is what the credit crisis/economy does. All of these previous declines took place in a relatively strong economy.(very unusual) If we do ultimately experience a serious recession all bets are off on when we will see stabilization.
Personally I do think a recession is inevitable, the only question is just how bad it is, and just how bad it is locally.
Will we see a surge in government spending or will we see government cutbacks?
Leroy,
"Personally I do think a recession is inevitable, the only question is just how bad it is, and just how bad it is locally."
Many academic economists and people like Warren Buffett think the recession started in January 2008; even though it was not brought out by GDP, there are other measures like GDI that show it.
Tedk, I agree. If we haven't seen the start of the recession, then I sure as hell think we are in for some real tough times when it officially starts.
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