Incoming!!!!! The collapse of the DMV Real Estate market (Germantown: bank owned, for sale)

[PBSG]

As an avid watcher of real estate, I see a collapse coming into the DC area. I know this board is frequented by RE agent who will prove me wrong, but time will tell if I am correct or if I'm wrong.

As the hot market in DC hits, so does real estate. Jobs become plentiful and people bid for houses over asking price. Much like Brooklyn, people want the next 'hot spot' such as Petworth or Fort Totten. Zip codes such as Bethesda or Potomac, which have always supported gains are much more of a desire for the young yuppies. Times have never been better. Except, the dumb money, which left the real estate market back in 2008 are back in 2012. The dumb money thinks that RE is the best investment ever after they read that latest Robert Kiyosaki book, which says that real estate never fails. Ever. Except when it does.

So here it is, past the post RE boom, when times were great and the vodka flowed like water. Real estate agents are the worst enemy. They want you to think that NOW is the best time to buy, and their union (The National Association of Realtors, who spent 22.3 Million in 2011 on lobbying Congress) is the BEST time to buy! Interest rates are LOW! Inventory is LOW! NOW is the time to act or you will be shut out of the market! Please.

If anyone is thinking of buying real estate for a long term investment, please wait. Interest rate do not matter if you can get the house for half the value in two or three years. People will move out of the DMV area when jobs open up, as this is not the Shangri-la of living. I like the DC area, but it comes a point when you can't summon the down payment nor can you save for it. That time has come. Foreign investors have taken over this market, the retiring baby boomers have so many houses to give away so they can move to Florida or Arizona (Which are not updated nor taken care of by the way, and no, a new tile floor is NOT an updated kitchen). People who moved here from Ohio and Indiana and Oklahoma are going to return to their hometowns. I for one am in no hurry to purchase a home, as that is a pipe dream given to us by saying "Purchasing a home is the best investment you can have". It isn't. Do the math on a 30 year, 400K loan at 5 percent. See what the real total cost is, and how much money you can save by redirecting your hard earned money elsewhere.

I'm not posting this to tell smart people what they already know. I'm posting this so when you hit the summer Open Houses and hear the "It's a great time to buy" line you may think twice. RE Agents are no different than a car salesman. Walk into a Mercedes or a Ford dealership any day of the week and ask "Is this a good time to buy a car", and what do you think they are going to say? RE agent do not care about the customer, they care about the amount of transactions they will receive. They are not your mortgage broker, banker, contractor, investment banker....they are there for the commission and nothing more.

Do you have any clue how many people are living paycheck to paycheck in their 500K house that they bought in 2007 when the RE agent said THAT was a good time to buy? Their house is now worth 70 percent of the value, and they are looking to get out? Or they have already stopped making payments on that house and are squatting? Have you ever heard of the 'Shadow Inventory' in the RE market? The foreclosures which are very soon to hit the market but take their sweet time since you can't dump a bunch of houses on the market at one time? Imagine that nice neighborhood in Falls Church, the one that you've been looking for with the 3/2/2 SFH. It has two houses for sale, right? Well, imagine that all the banks at one time took all of their foreclosures and put them on the market - those two houses would turn into twelve. Prices would plummet in a race to the bottom to grab as much money as possible. Did you know that when banks and RE agent do their "Comps" of recent houses sold in the area that they delete the bank owned/short sale houses in the area?. This keeps the price per square foot up, and props other houses in the area up.

My bottom line, PLEASE don't be bamboozled by the market. Be smart, do your research. Renting is not bad, as you have flexibility. A nightmare is trying to unload a house that you overpaid for with no buyers in sight. This is NOT a good time to buy a house, even with interest rates at an all time low. Current workers are being paid in 1998 dollars. Wait until the purchase price reflects what you make and go from there. RE Agents and banks are NOT looking out for your best interest! Reflect and study your own best interests! Like a wise man once said: The two best days of a homeowners life? The day you bought it and the day you sold it!

[badchad]

It's difficuklt to generalize about the entire real estate market. Since the initial crash of the market several years ago, an anecdotal examination of the prices of homes in my area suggests that prices have held steady since around 2010.

I'm curious if you have any basis for your speculation? For example, numbers and data?

[jacrawf]

I would say the real estate market collapse already happened in DMV... obviously not to the extent of FL or some other particular places. A house my grand parents sold in 2005 in Clinton, MD sold for 305k is now (according to Zillow) around 200k. The house my mom bought in 2006 in Anne Arundel for 250 is not worth that either. Obviously these are not the 400k+ houses you're talking about, but let's go there now. Me and my wife bought a brand new house in 2010 in a still-developing area in Gaithersburg for very low 400's. Comparable houses built new between 2006-2009 only a couple of miles away that initially sold for 600+k are going for low 400's now. We refi'd earlier this year and knocked a lot off of our monthly mortgage payment (over 600/month) and our appraisal came in 30k higher than it did when we bought. Of course it's a developing neighborhood and we were among the first to move in, so I'm not entirely surprised by that when the base price for the house we bought is 40k more than we paid for with all of our options we put in.

The main reason for the real estate collapse is too many people bought houses they could not afford and being given money to buy said houses that they could never repay back. All this easy money created inflation in housing prices. Have you gotten a mortgage recently? I don't know about you but even with me and my wife's 800+ credit scores, savings, and well above average incomes they still put us through the paces with 2 years tax returns, appraisals, called up our jobs to confirm to verify employment, etc.

Today, on my street, houses nearly identical to mine rent for several hundreds of dollars more per month than our mortgage (PI+TI). And we get tax breaks. Of course the renters seem to drive more expensive cars than most of the people (including us with our paid off toyotas) who bought their property. A couple I know who live a few exits north of my house, up in Germantown, pay over 1800/month for their 2 bed/2 bath apartment. I have 3+ times the space, a 2 car garage, driveway, deck, live several miles further south, etc and pay only a few hundred more per month. The apartment we used to live at in Alexandria was $1400/month for 600 sqft and we had to pay extra for parking (which incidentally costed more than our HOA fees do now). I'm sure my friends in Germantown could find a house for less than their rent near where they're living easily. If your prediction about housing prices comes to pass then I doubt the rental prices are going to follow. In fact, they'll probably go up. It seems the smart people bought their houses already.

OK, so you think prices will be lower. I'm not going to argue whether or not you're correct about that, because I'm not really in the business of predicting the future. But people need some place to live. Either they pay to rent a place, or they pay to own a place. I know which I'd rather do. Despite my mom losing value on her house, she loves it. She's happy. She's not looking to move until she retires which is still a decade or so away. She did not buy a place she could not afford (and she's a single woman who makes far less than I do, and it was a lot easier for her to get a mortgage in 2005/2006 than it was for us in 2010). She wont make a million dollars when she sells it, but since she didn't overextend herself she can continue saving, putting money in her retirement acct and of course build equity. Hey maybe she'll even rent it out to you for more than she pays every month!

Like I said... prices already came down around 30% in DMV (in some areas more, in some less) from their peak. In some areas they're already rebounding soundly. The replacement cost of a house is not going down. You think it's going to "collapse" from here? Again? If people want to buy a house, and they can afford it without overextending themselves, then great. Buy it. Live there for many years. Don't buy a house you want to flip in a couple of years. Those days are over and they're not coming back. If you'd rather rent and raise your family in an apartment complex where they raise your rent every year, or in a house on a street where everyone else is building equity and enjoying their tax breaks -- so be it. I've lived in many apartments and I have never been so happy as I am living in our nice, beautiful, home. Home ownership isn't for everyone. YMMV. HAND.

[wisedisguise]

The OP has a point. All one need do is look around the rest of the nation and realize DMV is tucked away in a bubble of naivete. What keeps the bubble inflated? The federal govt and that surely won't last forever. If it does the rest of the nation will go the way of Detroit. Something that has to happen soon for true economic recovery is raising interest rates for CDs, IRAs and other investments that pay handsome returns. People who can't afford to save money surely can't spend it unless they go deeper into debt and is one of the anchors that weigh us down; debt, plain and simple. Our nation's current economic status is a mirror of the economic status of the majority of it's citizens.
Wealth is not measured by one's yearly income as that can be abolished in one fell swoop. Wealth is measured by one's amassed holdings. If one is making $2500 monthly payments on a house and has very little equity in said house - especially one that has greatly depreciated - one's wealth is diminished. If a house was bought for $400K 5 years ago and is now valued at $250K the math is easy. The bank that holds that mortgage note isn't in the habit of honoring the fact said house has lost over half of the value fo which it was purchased to be kind to the purchaser. We will never see such until it is foreclosed and resold.
Back to interest rates... When the federal reserve gives the go ahead to raise interest rates - they should never have lowered them - people will find themselves deeper in debt than they are at present. If new homes are bought with loans with ARMS, it will hit the fan again.
Whether anyone wants to admit it or not, interest rates have to go up to at least 5% again as retirement accounts are either sitting stagnant or drying up from lack of activity. Too many who will read this know exactly what I am on about. Ignore the facts, deny the facts and hide from them but they will catch up.

I'll finish with the inane YVVM I have seen all too often as of late.

[jacrawf]

I don't necessarily disagree with OP's point regarding housing prices. They may go up, or go down, or stay the same. Only history will tell. History shows that prices went down here just like the rest of the nation when the housing bubble burst. DMV was not insulated. However, I disagree with the assertion that it's better to rent, right now. 5-7 years ago when everything was going insane... yes. House prices were doubling every other year then. Rents were not. Obviously, the government is doing everything it can to prop up housing prices. Whether that's the right way to go about it, or not, is certainly something to debate. (Personally I don't think it is, but I also don't think it's going to change.) Inflation will come once again some day. My 30 year fixed at 4.125 will be what it is (heck I need to refinance again!). My friend's apartment rent will not be going down... ever. Whether or not he owned or rented matters not if he lost his job -- he'd be screwed in either situation! If rents are, in some cases, higher than a mortgage, than how are you benefiting yourself by being a long term renter if you will be staying in the area for awhile and have a stable family situation if you can afford a place within your means? Certainly it's not for everyone (particularly single people). But I disagree that it's not for anyone.

Yes this area is heavily dependent on government for it's life blood. Most of my friends either are feds or contractors for the feds. When the inevitable cuts occur (and they have been occurring for a long time now... look at the employment data - government has been cutting workers for a long time now), there will be an impact. Is the government going to cut 20%, 50%, 90% of its work force? No way. Do you think most of those federal job cuts will be in the DMV area or other parts of the country? I vote for other parts of the country. Besides if there are big military cuts, where do most of the enlisted soldiers come from? Pretty sure it isn't DMV... Do you think the CIA, Pentagon, FBI, IRS jobs in this area are going away when they all have their huge (and in some cases, super hi-tech top secret) buildings in this area? Are the huge contractors all over Northern VA and MD going to stop suddenly pumping out aerial drones or making fancy jets or coming up with new ways to spy on everyone in the world anytime soon? Don't get me wrong. There will certainly be an impact in our area. But I predict your dollar will be worth 30% less than it is today before the nominal value of houses in the area drops 30%...again. I don't believe there will be a crash. Maybe it won't go up for a decade or more. But a crash? Like I said, that already happened, even here in DMV. And it was pretty obvious back in the 2000's that a crash was coming. I don't see it going down like that again. If a crash happens again, it's going to affect the entire country. Have you noticed they're building apartment buildings like crazy? Clearly it's hugely profitable to be running an apartment complex these days. Keep giving them your money.

Of course, I could be wrong. I'm wrong a lot, so it wouldn't surprise me. But that's just my opinion, based on the facts as I see them. I don't think I'm ignoring the facts, or denying them. I just have a different take on it. Let history be the judge. Most predictions are wrong anyway.

I do not deny this country has serious problems that are going to take a long time to work out. But I do know that I would be absolutely sad if I had followed OP's advice didn't buy my house. I'm probably not alone.

[MidValleyDad]

MD law also helps hold the prices up. You cannot walk away like folks were doing in Arizona. The stories I saw on TV about folks just walking away when values dropped and sticking the Mortgage company with the loss don't work here. My daughter was told that if she walked waway from her Condo and the Mortgage company sold it for a loss she would be held responsible for the difference. The only possible way out would be declaring bankruptcy (which would cost her her security clearance and job). So she is stuck. Given the number of people in the area whose jobs depend on their clearances that probably keeps people from dumping

[Joke Insurance]

DMV real estate market....since when was the DMV involved in real estate???

[superseiyan]

Originally Posted by PBSG

My bottom line, PLEASE don't be bamboozled by the market. Be smart, do your research. Renting is not bad, as you have flexibility. A nightmare is trying to unload a house that you overpaid for with no buyers in sight. This is NOT a good time to buy a house, even with interest rates at an all time low. Current workers are being paid in 1998 dollars. Wait until the purchase price reflects what you make and go from there. RE Agents and banks are NOT looking out for your best interest! Reflect and study your own best interests! Like a wise man once said: The two best days of a homeowners life? The day you bought it and the day you sold it!

I'm 30 and for me only having kids approaching middle-school age would make me consider buying. Until that I'll rent and rent and rent. It's more a philosophical than a financial reason actually--first, I think "owning" stuff is overrated, and "experiencing" stuff is overlooked. Second, I'll let someone else put the detail and time into maintaining a property--I can gain that time by pursuing other hobbies and interests.

Whether I'm 'throwing away money' is irrelevant for me.

[dkf747]

Originally Posted by Joke Insurance

DMV real estate market....since when was the DMV involved in real estate???

... and we don't even have a DMV in Maryland!

[Cruzincat]

I read the whole thread and couldn't find one explanation of what DMV stood for. Anybody?