Is the DC housing market nearing the peak set back in 2005-2006? (Arlington: mortgage, townhouse)

[mcleanexec]

Originally Posted by airjay75

I'm not trying to say a home isn't an investment of sorts - it surely is, but I think it is a mistake for potential homebuyers to look at it that way. I think of an investment as taking a sum of money, purchasing an asset, and, over time, expecting that asset to have an increase in value that exceeds the rate of inflation. If the rate of inflation is 3%, you expect that the increase in value of that asset will be greater than 3%. If the asset's increase in value doesn't exceed the rate of inflation, you haven't really made any money because it is simply worth the same real value.

But, when you calculate a rate of return, you need to take account of all the expenses you incur in connection with that asset. With a house, you have a lot of expenses - interest, taxes, maintenance, upgrades, etc. Once you factor all of those in, I think it is rare to find many houses whose increase in value exceeds the historic rate of inflation by more than a percent or two.

As I said, I still think it makes a lot of financial sense to buy a home for people in the right situation. I just think for many people, calling it a good investment gives them false assurance about future home values and making a profit on their house. Accumulating wealth slowly over time, yes. Making a profit, maybe, but far from a sure thing. As you mentioned, the quick profit mindset was taken to the extreme during the housing bubble with house flipping, but I think some of that mindset still remains with a lot of homebuyers out there.

As new as you are to the real estate market you should not be giving out advice to anyone in real estate investing. You say its rare to make money in real estate? What? No one flips anymore. I wont even comment on your other statements. Its a waste of time.

[va_lucky]

Originally Posted by shamrock847

Yes in the sense that they make the amount of house someone can afford for a given monthly payment lower.

No in the sense that rising rates are the result of an improving economy and that a better employment picture and rising stock market make buyers more willing to spend.

Rates are likely to rise in an inflationary environment, and inflation can be a good thing for the owners of real assets (e.g. real estate), since the price of those assets will increase due to inflation.

Crystal clear. Thanks!

[airjay75]

Originally Posted by mcleanexec

As new as you are to the real estate market you should not be giving out advice to anyone in real estate investing. You say its rare to make money in real estate? What? No one flips anymore. I wont even comment on your other statements. Its a waste of time.

I never said that no one makes money flipping real estate or that you can't make money in real estate. My comments are primarily directed at your average, residential homeowner, not professional investors. If you really have thoughts or arguments contrary to what I said, why don't you share them instead of summarily dismissing my comments. In my experience, that is a tactic often used by people who don't actually have any logical points to be made, but prefer to sound like they do.

[airjay75]

Link below is a discussion by various "experts" about whether housing should really be viewed as an investment. A number of different views, but the majority seem to agree that housing should not be viewed as an investment. Google "housing as a bad investment" and you'll find a lot of other people making similar types of arguments.

The Experts: Is Investing in a House a Good Idea? - WSJ.com

[NC211]

Inflation is not exactly always a good thing to real estate owners. The price may adjust upward with the rate of inflation, but the coresponding upward trend on interest rates makes the buying power of the dollar go down. For example: if it takes a salary of $50k to buy a $200K home with a 4% interest rate, imagine what it'll take in terms of salary to buy that same $200k home with an 8% interest rate. My guess, that home owner will find themselves needing to sell for $150k to attract the level of buyer that would be interested in the home to compensate for the adjustment in the buying power of the dollar. Inflation is a tricky double-edged sword. It never cuts one way or the other, but always both ways.

You'll never convince people that their home is not an investment to them. Beyond the social implications of one's home be a reflection of who they are as a person in many ways, it's also their biggest investment and largest expense (barring health issues). To not at least keep an eye on your value basis of your largest investment and know which way it's going, is somewhat wreckless. That being said, rule #1 to all who view their home as their investment - when the winds are blowing against you, is when you get up and clean up your curb appeal. "Asset management" finds it's true value when values are falling. I can drive through just about any neighborhood and within a few homes tell you the character of that neighborhood, if it's tired and lost, or going to survive and thrive. The first few homes and the condition they're in tell the tale of the vast majority that will follow, as they tend to set the tone and mood for the others.

[va_lucky]

For Washington area, real estate market turnaround is in full swing - The Washington Post

Equal to the peak? I have never heard of any area peaking in mid 2007?

Media hype?

[marie5v]

Originally Posted by JfromReston

Interestingly there is a house on my street that has sold three times - with no major improvements or changes.

5/2013 $734,000
8/2007 $739,500
8/2005 $775,000

That seems representative of the homes in my neighborhood, too. We are back to 2007 prices, but not the craziness of 2005.

[Novadhd5150]

We appear to be back in bubblelike pricing at least in my area, Vienna, Tysons. . Old brick ranches go under contract in days in some cases. Im not a believer in private homes as an "investment" since you put so much into it and not exactly earning income on it.

[NC211]

I'm on the fence if we're back in a "bubble" or not. Where I live, it feels like a bubble with the speed in which new homes are snatched up at what appears to be a pretty steep incline on price. For example, we bought our home exactly 2 years ago. We were the high-water mark for the neighborhood, a neighborhood that was about 60% built for 65 homes. Since then, we now rank around the 25th mark for highest price. All homes have roughly the same square footage too. We're unique with our yard as being the biggest in the development. Most are around .18 acres, we're about .30 acres. Had our first resale this year, sold in roughly 8 hours for full asking price. It was a 13% gain for the owners who owned it for a little over a year.

I think we've been seeing folks buying that are worried they're going to miss the boat on low interest rates this past fall. Those who were on the fence, being told the door is closing on them now. When you're talking these kinds of numbers to buy a home around here, 0.35% makes a big difference.

But given the low inventory of the DC market in general, it's hard to say we're in a bubble. The market is far from being overbuilt in that regard. The elephant in the room though for the inventory count, I think, will finally be seen in a few months when spring fever hits. Those who've been stuck in their home for the past 5 years, waiting for the values to return to the point of clearing the debt on the home. I think we're going to see a lot more activity in the re-sale market this spring because of this. And I think that'll play against some of this new home builder stock. $75k difference between brand new bare bones for 4,000 sf +/-, or 5 years old with custom work added to it over the years with 5,000+ sf. I see some of it now out by us. New white box for $650k, or bigger resale with color for $775k. In my opinion, the houses built during the last boom, are the better homes to buy. They were built bigger with more amenties and customized better than what we're seeing today.

Wait until April... that'll tell us if we're fully back to the go-go days. Last April certainly gave confidence for it, when the "ceiling" price went from the $600k mark to $650k overnight. We're flirting with $675k now with success. The next big one is $700k. If that gets pierced on 4,000 square feet or less, then I'd say we're back.

[homebeyer2013]

About 25% below peak in Manassas. Springfield looks more like 6% below peak. Mid 2004 to early 2005. Not the obscenities of 2006. I looked at a SFR in Arizona a few weeks ago selling for 1/3 of its new build price in mid 2006.