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Probably 90%+ of the people who buy make money on their home. It's not rocket science. The current crunch is absolutely unprecedented and in fact means that those who invest now will on average do even better. They are buying "low"
You sound like a real estate agent.
Generally speaking, home ownership is typically not that great of an investment vehicle if what you're looking for is a high ROI. True, the bottom doesn't fall out of the real estate market all that often, but the soaring profits people made flipping houses during the early part of the last decade aren't very common, either. The greatest benefit to home ownership is generally the advantageous tax position that it puts you in, but that's simply a function of government's stated interest in having people owning homes, and not anything intrinsically good about ownership itself. But in terms of making money on your investment, over time home values track rather closely to the rate of inflation--you'd frequently be about as well off investing in t-bills.
This doesn't mean that ownership should be avoided of course, only that it should be entered into wisely. It may not be rocket science to make money on a home investment, but there sure are a whole lot of people who are deeply underwater with their mortgages right now because they were told--and believed--that there was just no way to lose money on a house.
As far as people buying "low" right now, what has been happening to housing prices has been largely seen as a massive market correction, so it's quite possible that the prices people are paying for housing right now are in fact the fair value, and not the grossly overinflated values we saw during 2002-2007.
Last edited by 14thandYou; 05-19-2010 at 08:57 PM..
1. Home ownership nationwide might move only slightly more than the rate of inflation, but Washington DC has performed substantially better. The growth in DC and the demographic shifts going on suggest that the trend will continue. The city will continue to gentrify.
2. The tax benefits are an integral part of the financial advantage. It's a bundled deal. The after tax returns I have earned are very nice and I have the price stability of ownership. My annual costs at this point are about 25% of what renting a comparable property would be.
3. I said wisely, and right now would be a wise time to consider very carefully. The house market is way down and people like you appear to be running scared. This may be a once in a lifetime dip in the price of homes.
I agree that it's a great time to buy, but I'm just (unfortunately) not interested. It's not just purely taxes and price fluctuations, there's also upkeep. Something will break and need to be fixed/replaced or I'll decide to "re-do" something, and it adds up. A lot of the reason I don't want to buy a place is because I don't want to deal with that added responsibility and expense. Depending on the age and condition of the house, these expenses can offset any profit from tax benefits or price increases (normal increases, not crazy upswings like we had seen).
Another thing, which pertains to this area in particular, is that the houses in the range where I'd be looking haven't seemed to drop that much in price. Just before everything went down the townhouses in my complex were going for about $450k and are now going for $425-430k. Yes, it's a drop, but not enough for me to feel like I'm getting a crazy deal (considering they were going for $250k or so less than 10 years ago). The places that do seem to have dropped significantly are the newer condos that were (in my opinion) overpriced to begin with, leading me to agree with 14th&You that the drop just lowered the price to a fairer value. If I was going into the market wanting to buy already, then it's great. However, since I don't really care at this point I just don't feel inspired to go get a mortgage.
1. Home ownership nationwide might move only slightly more than the rate of inflation, but Washington DC has performed substantially better. The growth in DC and the demographic shifts going on suggest that the trend will continue. The city will continue to gentrify.
True, DC's doing a lot better than other places. But the thing to keep in mind is that the people who really made killings in the DC market were those that bought before the entire market stormed upward. Homes in and around Logan, for instance, used to easily be found in the $200-$250 range. Now, a 2 BR goes for $500k easily, and a full townhome goes for well over $1 million. It's hard to make a good return when you're entering at that level, unless you're planning to remain for a lengthy period of time. And this is becoming increasingly true across the city--it's not uncommon to see homes in "tranisitioning" neighborhoods going for $400-$500k.
I'd say that the DC market is a more stable one, but unless you get lucky or really know what you are doing, it's a difficult proposition to see a good ROI.
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2. The tax benefits are an integral part of the financial advantage. It's a bundled deal. The after tax returns I have earned are very nice and I have the price stability of ownership. My annual costs at this point are about 25% of what renting a comparable property would be.
Undoubtedly the tax benefits are advantageous, but I'd say you are exceptionally fortunate if your annual costs are 25% of what renting a commensurate property would be. In most of the neighborhoods I have looked in DC, the disparity is not nearly as great--if it exists at all.
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3. I said wisely, and right now would be a wise time to consider very carefully. The house market is way down and people like you appear to be running scared. This may be a once in a lifetime dip in the price of homes.
Funny, I recall being told basically the same things in 2006 and 2007--talk of sky-is-the-limit increasing home values, unmatched financial stability, great time to buy, etc. Woops.
Today is probably a better time to buy than three years ago, but I feel that much of the DC market is still overpriced/overvalued. Is that 3 BR townhome in Michigan Park really worth $450k? Weichert tells me it is, but I have my doubts.
True, DC's doing a lot better than other places. But the thing to keep in mind is that the people who really made killings in the DC market were those that bought before the entire market stormed upward. Homes in and around Logan, for instance, used to easily be found in the $200-$250 range. Now, a 2 BR goes for $500k easily, and a full townhome goes for well over $1 million. It's hard to make a good return when you're entering at that level, unless you're planning to remain for a lengthy period of time. And this is becoming increasingly true across the city--it's not uncommon to see homes in "tranisitioning" neighborhoods going for $400-$500k.
When the people bought into Logan Circle it was not mainstream. I'd agree that if you buy at Logan or Dupont Circle today, there is less potential for a great price appreciation. How about Grant or Sherman Circle? The architecture isn't as compelling, but there's the potential. I made a bit of money in DuPont Circle during the 80s, but I bought at the northern edge, not at 19th and R. Real estate markets are actually fairly predictable. Profile who is moving to town and find out what types of properties they are buying. Do your homework and you can find properties that are both nice to live in and have great long term potential. I bought into a completely ignored neighborhood in 1990 -- Crestwood. The houses are nicer than Mt Pleasant and Takoma Park; and the prices were cheaper. A comparable house to the west of Rock Creek Park cost 3 times as much in 1990. I don't view that purchase as "just lucky." I had looked for a year for a good property.
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Originally Posted by 14thandYou
I'd say that the DC market is a more stable one, but unless you get lucky or really know what you are doing, it's a difficult proposition to see a good ROI.
Undoubtedly the tax benefits are advantageous, but I'd say you are exceptionally fortunate if your annual costs are 25% of what renting a commensurate property would be. In most of the neighborhoods I have looked in DC, the disparity is not nearly as great--if it exists at all.
The reason I have such a low mortgage payment is that I bought 20 years ago and locked in my cost. That's the benefit of planning for the long term.
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Originally Posted by 14thandYou
Funny, I recall being told basically the same things in 2006 and 2007--talk of sky-is-the-limit increasing home values, unmatched financial stability, great time to buy, etc. Woops.
Today is probably a better time to buy than three years ago, but I feel that much of the DC market is still overpriced/overvalued. Is that 3 BR townhome in Michigan Park really worth $450k? Weichert tells me it is, but I have my doubts.
I don't listen to real estate agent talk. I look at the numbers. In 2007 there were a lot of speculators in the market, and there was a huge condo building boom underway. Speculators + large building program = price correction coming. The speculators have been largely shaken out and the building boom has tapered off.
I'll predict however that people who bought good properties even at the height of the boom will end up having made a good long term investment. They just need to be patient.
it's not uncommon to see homes in "tranisitioning" neighborhoods going for $400-$500k.
More than that in my neighborhood, Shaw. My neighbors are listing their houses and even some condos in the $700's and they seem to be settling in the low to mid 600's. Two large shells sold by me for $450. I feel like I lucked out getting my fixer-upper for less than that.
Granted, these homes are very close to Logan Circle (an agent refered to it as 'Logan East' - love these people), and within one to three blocks of the Shaw South Metro but they also have sec. 8 housing to the north, east and south, which seems to be maintaining the 'transitional' status of an otherwise georgeous neighborhood.
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The reason I have such a low mortgage payment is that I bought 20 years ago and locked in my cost. That's the benefit of planning for the long term.
Good for you man. You are probably making out like a bandit. For the 25-30 year olds that are coming in on an increasingly gentrifying DC, I think this most recent dip, the 8k credit and 4.78-5% mortgages is as good of a deal as we'll see.
The reason I have such a low mortgage payment is that I bought 20 years ago and locked in my cost. That's the benefit of planning for the long term.
Well, then you're sitting on a gold mine! Good for you snatching up a home prior to the housing market explosion. Unfortunately, that time has come and gone. Deals are much more difficult to come by in the DC region, to the extent they exist at all.
Petworth and Brightwood homes are more reasonable, but even there I consistently see homes going in excess of $450k. And Brightwood is an amenity desert. I wouldn't be opposed to buying there, but many of those are homes that literally tripled in value over the span of a decade. I don't think that's going to continue.
And yes, if you hold onto your home for 20 years the odds are good that you'll make out pretty well. Problem is, a lot of people aren't buying homes to live in them for 20 years--they're expecting returns after 4-5.
Good for you man. You are probably making out like a bandit. For the 25-30 year olds that are coming in on an increasingly gentrifying DC, I think this most recent dip, the 8k credit and 4.78-5% mortgages is as good of a deal as we'll see.
Whether it ends up being as good a deal as I got we'll have to wait and see. It's not hard to predict it will be a better deal than renting. Good luck with your "fixer upper". The advantage of renovating is that then the house is the way you want it to be.
When I bought my first house the interest rates were 12-14%. This is the lowest interest rates have been in my lifetime.
Well, then you're sitting on a gold mine! Good for you snatching up a home prior to the housing market explosion. Unfortunately, that time has come and gone. Deals are much more difficult to come by in the DC region, to the extent they exist at all.
In real estate there is always a deal out there somewhere. You just have to look.
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Originally Posted by 14thandYou
Petworth and Brightwood homes are more reasonable, but even there I consistently see homes going in excess of $450k. And Brightwood is an amenity desert. I wouldn't be opposed to buying there, but many of those are homes that literally tripled in value over the span of a decade. I don't think that's going to continue.
As long as the suburbs remain transportation hell and the city grows, DC real estate will have upward price pressure.
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Originally Posted by 14thandYou
And yes, if you hold onto your home for 20 years the odds are good that you'll make out pretty well. Problem is, a lot of people aren't buying homes to live in them for 20 years--they're expecting returns after 4-5.
Anytime in the last 18+ years if I had to sell, I would have been OK. Real estate prices in this are tend to plateau for a while and then shoot up. It will take a few years to earn out the transaction costs.
I remember having a very similar conversation to this one in the mid 80s when I bought my 2 bedroom condo at DuPont Circle for the outrageous price of $135 thousand.
I remember having a very similar conversation to this one in the mid 80s when I bought my 2 bedroom condo at DuPont Circle for the outrageous price of $135 thousand.
...which could probably now go for around $600-$700k. My point is that you aren't going to see DC real estate values ascend nearly that significantly over the next 20 years. You were correct earlier when you stated that the recent nationwide decline is basically unprecedented, but then again so was the five year boom that preceeded it.
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As long as the suburbs remain transportation hell and the city grows, DC real estate will have upward price pressure.
I'd 10x rather be in Arlington, Bethesda, Alexandria or another close-in burb than Brightwood, but those locales are beyond our realm of affordability. Commute times are a factor, but only one of many.
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