Home sale prices rise (rental market, house, employment)

[mshan242709]

Hi Margery:

Any idea if all those poor souls that, either for greed or just being deceived by someone else, took out those toxic pick a payment, toxic option ARM mortgages have been already foreclosed on, or is there new risk of credit tightens up again and creating another new wave of foreclosures?

[novajs]

Any idea about the local employment prospect given the deficit reduction initiatives at DoD and IT spending freeze at many other agencies? If the unemployment goes up a little bit, that will have an adverse effect on the housing market.

[info781]

So much pessimism here. I know many people who bought 8 - 10 years ago, who now have a boatload of equity, not everyone bought in 2006-2007 or used their house as a cash machine and good for them. Also many houses and neighborhoods have been fixed up with all the money.
I expect to see low interest rates for a long time. Many people in this area will be able to retire somewhere else comfortably because they moved to the promised land that is NOVA.

[mshan242709]

There was a NY Times Rent vs. Buy article that said after last housing crash in lates 80s it took 10 years for home prices to re-reach nominal peak prices, not adjusted for inflation.

From what I've read, very coarse rule of thumb may be to take 2003 prices as fair market, and adjust up for inflation from there (housing, as a whole, over very extended periods of time, goes up at rate of replacement cost).

Maybe NoVA is immune, but my impression is that housing prices all over country are going to bounce along bottom for many, many years to come.

It doesn't sound like NoVa was grossly overbuilt as Florida / Phoenix / Las Vegas, but you have to realize peak home prices were based on interest rates falling drastically, plus option ARM pick-a-payment, negative amortization loans, which allowed people to buy twice as much house as they could if they had more normal interest rates and had to include principal in their monthly payments. Housing prices could double, and the monthly payment was still the same, until interest rates (LIBOR) went up and the 2 -3 year teaser rate period for the toxic loan expired. That is gone and hopefully won't come back and it seems 30 year fixed rates are at amazingly low, historically speaking. If stock market really pops in sustained manner going forward, it may indicate that all of the "hot" money pouring into bond funds this year is being redistributed in stock market, and 10 year Treasury, and thus 30 year fixed mortgage rate, will probably start going up and keep going up slowly over time.

If people bought many years ago and have lots of equity, great. But if anyone buys thinking they are getting a bargain right now that is going to make them rich, I suspect they will be very disappointed going forward. Realistically, it is better to view as a place to live and a hedge against inflation. Plus S & P 500 could very plausibly double (I've read previous 5 year projections for SP500 1600, though it is around 1100 right now) in next 5 years, so if you choose good mutual funds, your rate of return going forward will probably better than speculative real estate investments. Both Longleaf Partners and Bill Nygren at Oakmark feel that way, and I am sure there are plenty of other, patient, long-term investors that think the same. Once some clarity develops going forward, almost everyone agrees stock market is very cheap right now. Increased M and A activity and people like Michael Dell wanting to take their company private because stock market price is too low all seem to indicate the same.

If annual inflation is 1.5% and real growth is zero, then corporate sales and profits probably average that same 1.5% growth rate. In a no-real growth mode, companies won’t need to spend much more than depreciation, which leaves them with an after-dividend free cash flow yield of about 6%. With corporate balance sheets already cash heavy, let’s assume excess cash is simply used to reduce shares outstanding. Where does that put us in five years? Corporate earnings would be up 8%, common shares outstanding would be down 27%, and EPS would be 47% higher. If the P/E rose to its long-term average of 15 times, the S&P would just about double in five years and would have provided more dividend income over that time than the interest income from a five-year Treasury. http://news.morningstar.com/articlen...onid=97683.xml (I do think, though, he is assuming we don't end up in a prolonged, Japanese style deflationary spiral)

Equities offer a superior opportunity for investors today, particularly compared to fixed income. The earnings yield of the S&P 500 based on 2011 projected EPS is 9.4%. If adjusted for the approximately $100 of cash imbedded in the S&P, the operating earnings yield increases to 10.4%. The numbers are slightly more attractive overseas. Based on 2011 estimates, the EAFE Index earnings yield is 9.8%. If earnings grow organically from today’s depressed levels at only 5% per year (a rate that does not require the reinvestment of earnings because of current excess capacity), and even if the P/E ratio remains below the long-term average, an investor’s five year average annual return will be in the mid-teens. http://news.morningstar.com/articlen...onid=98212.xml

[normie]

I doubt most people these days are buying homes in Nova as an investment. Just my opinion, but I think most homebuyers are people moving here, people who have been saving for a home to live in (and have been saving for a long time), or people who are starting families.

[Fairfax SuperNoVA]

The demand was sucked forward due to the expiring tax credit, pure and simple. Providing that the government does not pass any new home buying incentives, the 3rd and 4th quarters should be a much more realistic barometer of how stable the housing market really is (or isn't).

[metclubin]

At Fairlakes (Fairfax County 22033) its opposite. I have been tracking the value of my condo/townhouse on zillow.com and its dropping consistently for the past few months. I think Loudon has more townhouses and single family than condos so the values are increasing steadily.

[Guamanians]

This is not a big surprise if you consider the federal Gov't expansion. Also, if NOVA (i.e. the Tysons/Dulles corridor) remains a prominent job region then real estate will stay afloat. A secondary factor is gas prices stabalizing below $3/gal.

[FCNova]

One thing protecting this area from price drops right now is lack of inventory in the SFH market. In the areas I'm looking there isn't much and when a good house comes on the market it goes fast. I'm wondering what will happen this spring because I think alot of people have been holding off selling because of how bad the second half of 2010 was and are finally going to do it.

[Caladium]

Originally Posted by FCNova

I'm wondering what will happen this spring because I think alot of people have been holding off selling because of how bad the second half of 2010 was and are finally going to do it.

I don't think people who put off selling will change things that much, although we might see them testing the waters quite a bit so there could times when inventory increases. The way I see it, if they can afford to hold off selling until prices rise, then that's exactly what they'll continue doing. Some will test the waters this spring. If inventories swamp or prices drop, they'll pull their properties right back off the market and wait another year.