Housing recovery driven by shortage of supply? (Fairfax, Orange: short sales, real estate market)

[NovaZombieDrivers]

I'm sure anyone shopping around for their first home is sharing in my frustration. Where are all the listings! Bidding wars are making a comeback! Investors are buying at record levels. Prices are creeping up!

What kind of recovery is this? Investors are buying more homes than first timers. This is not the market I was hoping for when I was sitting on the sidelines all these years saving up a little hoping to land a good deal.

I'm not really sure what to do. The supply is limited due to underwater folks who cannot sell waiting for big price rises. If that's what its going to take to bring the inventory up to respectable levels, I don't want to be the sucker who bails someone out of their underwater mortgage. (I apologize to those who purchased between 2004-2006 and were victims of the housing bubble, not entirely your fault.

Young buyers like myself should be asking alot of questions:


What happens to the housing market when rates rise? Will prices come back down, or will they stay the same while rates continue to rise (worst case scenario for those who wait too long)

Sequestration... What? (The DC area economy is most prosperous when the government has spends, spends, spends!!!)

Why were so many people still under water on their mortgage in an area that has one of the best economies in the country? Even in a high demand location, you can still get your self into trouble when you close your eyes and buy something.

Are the benefits of over paying for a home (tax breaks, pride, stable living cost) still worth it when creeping into the 4 - 4.5x annual income range which is where those underwater folks were at when they bought, and where we might be heading if prices or increase.

These are just talking points meant to bring out some discussion and help out those in my position.

[FCNova]

I don't think low inventory is singlehandedly driving the recovery, but it's helping prices in most neighborhoods. We haven't really hit selling season yet so it should get better if you're looking to buy. Although doubtful so much inventory will flood the market that you'll see it affect prices.

Nobody really has a crystal ball in terms of what will happen going forward. Spending cuts, interest rate changes, economic changes, etc. There are thousands on opinions of it by very intelligent people. The bottom line is you shouldn't stretch yourself too thin in ANY market, good or bad. Because you just never know.

[smarterguy]

The few places I've kept an eye on the past 6 months or so have seen their listing price cut by 5-10k. Fairly desirable areas, close to Metro stops, Interstate, shopping, job centers, etc. I don't know the market well enough to know if they're overpriced or if there's just not enough demand in the area. But going by the price history, some of these places are listed at or below what they were purchased at more than 7 years ago.

I'm ready to buy with 20% cash but am holding off till at least the budget situation is settled. DC has been insulated a little too much from the rest of the country. Even with a secure job, I'd be hesitant to buy because if I end up having to move, I could possibly be stuck selling underwater or with a cheap rental market.

[mshan242709]

Was this area ever really overbuilt, or did prices just get out of control to the upside?


Not sure about exact figure, but I remember hearing on tv years ago that 50% of U. S. housing market (total value?) was concentrated in four states: California, Nevada, Arizona, and Florida (basically ground zero for the housing market bubble and crash)

House price indexes might have been severely skewed to the downside early on because only things that sold were absurdly lowly priced foreclosures and short sales. Now it seems like bulk of sales might be healthy sales, with lots of more expensive houses selling too (rich who don't necessarily need mortgage qualify for lowest rates, while lots of others can't take advantage of historically low rates).

Recent builds (short sales and foreclosures) in Phoenix were apparently selling for about 40% below replacement value (Phoenix housing market is rising | John Burns Real Estate Consulting), and investors have swooped in and bought them, renovated them, and rented them out. Atlanta is supposed to be similar, but investors might not have cleaned out all of the cheap inventory there yet.

Also got to remember how low mortgages rates are, so that the cost of ownership, not necessarily nominal price, are at historic lows (old article: http://www.kcmblog.com/2011/03/14/if...e-rich-buying/)

With all of the headlines on tv about how housing market has bottomed and prices going up (seems like real bottom might have been last summer?), people who are scared about being priced out of market might be overpaying a bit again for homes.

Diana Olick (Washington metro based Real Estate reporter for CNBC): http://www.cnbc.com/id/100397644



Without all of the global central bank intervention, and economy continuing to improve, comments I've seen suggest yield on 10 year Treasury should be around 4% some time in reasonable future, which translates to about 6% 30 year fixed (still low by historic standards). Seems like that jump won't happen for a couple more years, but ultimately that seems to be where we are headed when debt deleveraging around world completes and real growth can resume.

As for OP's question about buying now, google for New York Times articles on rent or buy (e. g. 2008: http://www.nytimes.com/2008/05/28/bu...leonhardt.html vs. 2011: http://www.nytimes.com/2011/05/11/bu...leonhardt.html ; I think he redoes article each year, so you have to google around) , rent ratio, and their interactive calculator (http://www.nytimes.com/interactive/b...alculator.html).:

"But it’s O.K. with me if our timing wasn’t perfect. After several years of reporting on the housing market, I’m convinced that the most common real estate mistake is viewing a house first as a financial investment and only second as a home. That’s one big reason we ended up in this bubble-induced mess. Most of the time, the decision whether to rent or buy should be based above all on life circumstances. Do you expect to move again in a couple years? Or is there a good chance that you’re ready to settle in — and stop worrying about real estate for a while."

http://www.nytimes.com/2008/05/28/bu...l?pagewanted=2 (home as hedge against inflation (continually rising rents), vs. a get rich scheme?)

Fundamentals matter again, so you buy a house (at reasonable price) if you know you are going to live their for many years, taking into account location, schools, convenience to amenities, etc. When mortgage rates are above 6% again, houses can probably still appear cheap now, if you hold for long term and actually live in home. If you are going to flip the home in a few years, you can still lose money even if price of your home doesn't decline going forward because of transaction costs of buying and selling.




(Haven't kept up with specifics, but if you can get say 3.25% 30 year fixed, 3.5% - 5% down payment, with closing costs rolled into mortgage along with PMI, that is an amazingly good mortgage. Accounting for inflation going up over time, you will probably end up borrowing money for free after tax deductions on home you actually live in, and IMO should never pay it off early unless you sell the house).

[GustavoFring]

Originally Posted by FCNova

I don't think low inventory is singlehandedly driving the recovery, but it's helping prices in most neighborhoods. We haven't really hit selling season yet so it should get better if you're looking to buy. Although doubtful so much inventory will flood the market that you'll see it affect prices.

I kept thinking it would get better throughout last spring as well.. and it never actually did. I ended up getting into a (very small) bidding war on the place I ultimately got. I have heard that a ton of new buildings are coming online in DC, which should help with the rents and prices there, but I'm not sure what's happening in Virginia. I think one of the issues with VA is that you've got very high localized prices around metro stops, and there simply isn't much space left to build near those metro stops. The silver line should help this a bit in NW Fairfax though, although it appears as though residential Tyson's is going to lag behind the metro by several years.

[CAVA1990]

Well if it's like what's happening in Southern California, you're competing with a lot of companies investing in homes with cash, since their potential returns are so low elsewhere. Although I've not seen much of that mentioned on here, it would be strange if it were rampant in one affluent market and not in another. Perhaps they've managed to keep it on the down-low. I've been reading about this phenomenon so much on the Orange County, CA forum that I was going to post the question about it here.

[airjay75]

Another first time home buyer here. My wife and I are actually in the middle of a pending contract for our first home - we started seriously looking January 1st, put an offer in on a home about 10 days later, and ratified a contract one day later.

As a lot of people will say, whether it is a good time to buy really depends on your particular situation. There are a lot of factors that go into the equation. For us, it came down to the fact that the economics made sense, we had the money for a down payment, and we found a house we plan to live in for at least the next 5 years and possibly much longer. I've always considered the the main question for me to be - can I say with a reasonable level or certainty that I plan to live in that location for at least the next 5 years. In addition to that, I've always thought that I needed to be in a position to put 5-10% down. Of course 20% would be nice, but that is tough to do in a market like the DC area. Anything less than 5% and I think you are putting yourself in a dangerous position in case you did have to unexpectedly move (unless you have the excess cash to get out of an underwater mortgage). Some would probably say I'm a little too conservative and some would say I'm a little too liberal (in the financial sense of course).

In terms of the DC real estate market, yes, inventory is low, but that doesn't mean it is nonexistent. In the looking I have done over the past month, I have found a number of homes that I thought were great. Of course, it depends what you're looking for and what compromises you are willing to make. If you're thinking you're going to find the type of selection of homes that you would in a place like Atlanta or Phoenix, well you need to keep dreaming. The DC area is older and much more expensive. I personally feel much more secure about buying a home in the DC area than I would if I lived somewhere where the housing crash was more pronounced. Yes, you are going to have ups and downs in the real estate market, but it is hard to see the area completely tanking. There is just too much here that matters to the well being of the country as a whole. That's my opinion for what it's worth.