Real Estate on the bubble what that mean for Northern VA

[Mike from back east]

Originally Posted by jmarkd

I am either going to rent another year or leave the area. The elephant in the room that isn't considered is that a lot of the homes in NOVA--particularly condos--are not primary residences but "investment properties" held by speculators. So it's not a tight market where supply equals demand--one reason the rent-vs-own ratio is WAY out of whack (i.e. I rent a new 3BR condo in Fairfax for $1600/mo., landlord paid $420K in Dec. 2005).

Agree that the presence of investors messes with home prices. With so many people investing in SFH's and TH's (and condo's) there are a lot of dollars running around (Demand for good investments) chasing a fairly finite amount of property (Supply of investment).

When demand exceeds supply, up goes the price of the supply. There are a lot of homes on the market, but the supply is not easily grown by new construction. It takes years to get land, zoning, financing, water and sewer lines, and build a new subdivision. Meanwhile, money is fluid, its fungible, it can go anywhere overnight, wherever the best return is. When the stock market when bust, and the Fed lowered interest rates to insane levels, money poured into real estate....prices exploded upwards to sop up all that money....

What bothers me is that by playing the "real estate game" all the investors do is put upward pressure on prices. People who want to own a home cannot afford the elevated prices. Many of the people who brought us the dot.com bubble jumped into real estate when the Fed lowered interest rates after 9-11 and the dot-com bust.

In our wide-open anything goes capitalist nation, don't expect relief from the government, they're sided with big money, not us. I'm no liberal by any means, at least about money, but the situation needs fixing. On one hand the government wants people to be homeowners, then does nothing to prevent out-of-control market forces from pricing us out of the market. Maybe SFH's and TH's should not be allowed as investments, only as primary residences, or as vacation homes if outside the MSA, or limited to one extra home per household. Of course, this talk makes ultra conservatives and small-government types apoplectic and rant endlessly - but they already got their's.....now they want to shut the door on everyone behind them....and milk it financially....

My friend owns 8 houses, lives in one, rents the rest, flips some, etc. If my friend had built those homes to rent them out, that would be fine, but didn't. My friends money is out there competing with everyone else's to buy those properties, working to drive up prices and to price out of the market many first time buyers and lower middle class buyers. This is what seems wrong to me, one set of people victimizing his fellow man, the haves get rich off the have-nots, nothing new on this planet. One role of government is to smooth out the ragged edges of capitalism, and the inability to buy a home is a ragged edge - you personally feel the slashings.

Thats the situation in the DC area market you are in. That's why we left in 2005 for Colorado. Twice the house, half the price.

s/mike

[hairmetal4ever]

Originally Posted by jmarkd

I am either going to rent another year or leave the area.

How can landlords afford to do that? And WHY is the real question!

Originally Posted by Mike from back east

Agree that the presence of investors messes with home prices. With so many people investing in SFH's and TH's (and condo's) there are a lot of dollars running around (Demand for good investments) chasing a fairly finite amount of property (Supply of investment).

You can't just "make a law" saying you can't own more than a certain number of homes. For one thing, in non-inflated markets many investors hold a large number of properties for years for rental income.

[jmarkd]

How can landlords afford to do that? And WHY is the real question!

Speculators lose money on rent and gain it on the appreciation. Here is the line of thinking:

"I buy a 3BR condo in Dec 2005 at $420K, lose money on it for 2 years renting it, but when I sell it in Dec. 2007 it sells for $500-600K and I have a tidy profit."

That worked in 2003 and 2004, but unfortunately for the greedy speculators who have priced me out of the market, home values have gone down in the past year and will probably continue to do so, at least for another year.

Since condos no longer have the "sure thing" title speculators once applied to Pets.com, or anything with ".com" in the title, many are upside down on their loans, especially those with tricky loans like interest-only and "pick a payment" option ARMs. So speculators are dumping properties, flooding the market with supply, then the whole supply-demand curve thing does its magic.

Another factor exacerbating the situation for individual sellers, though, is the fact that builders are still building and can afford to sell homes for less, because they pay wholesale (the cost to buy the land & build the home). Individuals, on the other hand, pay retail. Real life example: Toll Brothers in South Riding sells a guy a 4BR TH for $430K in 2005, and now they're selling the same floor plan for $380K. Meanwhile the guy is asking $450K for his place on Craigslist, hoping there's someone out there who's a bigger sucker than he, someone who can't do math and see that it's 70 grand cheaper to buy new.
Toll makes out fine, they just take a 10% profit on the house (say they paid $350K to build each place). Compared to last year it's bad, because they made a 30% profit on the guy in 2005, but they're still ahead, and can make it up in less "bubbly" areas away from the coasts.

On one hand the government wants people to be homeowners, then does nothing to prevent out-of-control market forces from pricing us out of the market. Maybe SFH's and TH's should not be allowed as investments, only as primary residences, or as vacation homes if outside the MSA, or limited to one extra home per household. Of course, this talk makes ultra conservatives and small-government types apoplectic and rant endlessly - but they already got their's.....now they want to shut the door on everyone behind them....and milk it financially....

My friend owns 8 houses, lives in one, rents the rest, flips some, etc. If my friend had built those homes to rent them out, that would be fine, but didn't. My friends money is out there competing with everyone else's to buy those properties, working to drive up prices and to price out of the market many first time buyers and lower middle class buyers. This is what seems wrong to me, one set of people victimizing his fellow man, the haves get rich off the have-nots, nothing new on this planet. One role of government is to smooth out the ragged edges of capitalism, and the inability to buy a home is a ragged edge - you personally feel the slashings.

As an ultra conservative/libertarian who can't afford to buy, let me say I have no problem with the current situation. It's the price we pay for a free market. Government intervention always makes things worse in these kinds of situations. Look at Freddie Mac: it guarantees these loans so lenders are more tempted to make a loan to a guy who clearly can't afford it, because if he defaults Uncle Sam will bail the bank out, with Uncle Sam's endless pile of cash.

The timing sucks for me, but let's be real: the Founding Fathers weren't fighting for affordable housing. I have no right to own a home. I am free to rent for a more reasonable rate, or move to West Virginia and commute in, or get a job somewhere else, or send my wife to work, or sell lewd pictures of myself on the Web, etc.

For poorer folks, I think local government should step in where the churches and charities can't, and make sure these folks have a decent roof over their head. But for yuppies like me, "that's the breaks." I wish my son had a yard to run around, but that's more of a nice-to-have tha na must have. We are warm, have rooms for each of us, electricity and heat, etc. That's a lot more than you can say than people in most countries.

Besides, if I have a loan for my house that is going to take me 30 years to pay off, do I really own my home? Or does the bank? I know the answer if I quit making the payments!

[Need_affordable_home]

Originally Posted by hairmetal4ever

As someone with an economics background that makes sense to me-BUT:

Won't demand begin to decrease once prices reach the point that people just CAN'T buy and choose to either rent (most likely) or leave the area (unlikely) instead, therefore driving down prices?

Its happening here. The percent of houses selling is down more than 50% we have lots of people leaving Florida. I for one cant wait to get out of overpriced Florida and get a real house for $50k! Prices will fall about 30% from the peak and even that, only the richer people will afford a house, the others will just move out.

Originally Posted by jmarkd

I am either going to rent another year or leave the area.
The elephant in the room that isn't considered by you or Hokie is that a lot of the homes in NOVA--particularly condos--are not primary residences but "investment properties" held by speculators. So it's not a tight market where supply equals demand--one reason the rent-vs-own ratio is WAY out of whack (i.e. I rent a new 3BR condo in Fairfax for $1600/mo., landlord paid $420K in Dec. 2005).

We have that too. I just saw a $380k house "for sale or rent at only $1625!"
normally I am against renting but when house prices are falling, when rent is far cheaper than a morgage+property tax+insurance+HOA, etc, it becomes a good deal. Probably some investor who cant flip his houses and the huge morgage is eating him so he subsidizes the rent till he sells then he will transfer you to his other house or evict you. I for one would rather move out where I can get a very nice house for well below $100k and own the american dream for a decent reasonable price.

[typical guy]

I find it interesting to go back and read a thread like this. People in the thread claim there is no bubble. People claim a half million dollar townhouse is worth it. I can go to PWC and buy a townhouse for under 100k now.

[oneasterisk]

Originally Posted by typical guy

I find it interesting to go back and read a thread like this. People in the thread claim there is no bubble. People claim a half million dollar townhouse is worth it. I can go to PWC and buy a townhouse for under 100k now.

Haha very true! I never understood how some of those homes were selling for so much. I have a coworker who bought a house for 380k during the bubble, and now the house across the street sold for 160k.

I bought in late 2003 and I'm pretty sure I overpaid for my house a bit. Not by too much but enough, but I needed to buy at that time. My parents were selling their home because of the up market so my brother and I decided it was a good time to buy a house for ourselves because of the low interest rates. We almost bought our parents home from them, but I wanted to move further north and I didn't want to dig into my parents proceeds since they were using it to build their retirement home overseas. I'm glad we bought in the area we did though, because of its location it has kept up in value. Also glad we bought a modest home versus a much more expensive home. If I had it to do all over in 2003, I would still buy because of the circumstances I was in. I did not want to rent another year because my rent kept going up. With my half of the mortgage and utilities, I actually pay less than I did renting a 1 bedroom apartment in Alexandria.

[bostoncreme]

Originally Posted by typical guy

I find it interesting to go back and read a thread like this. People in the thread claim there is no bubble. People claim a half million dollar townhouse is worth it. I can go to PWC and buy a townhouse for under 100k now.

Thank you for digging up this thread. The hubris on display is amazing.