Want to buy a house in Loudoun? Think again (McLean: short sales, 2015)

[Victor-in-Fairfax]

For several months, I have been evaluating if it makes sense to buy a house in Loudoun. Sadly, I have reached a negative conclusion:

• Development in Goose Creek ("The Preserve) will add 400+ new homes in the next 24 months.

• Toll Brothers is building like there is no tomorrow ("Loudoun Valley"). In fact, buyers dont realize that Toll has enough land to keep building in Loudoun Valley for 4 more years. Do not succumb to the sales pressure at Toll.

• Loudoun county supervisors recently approved a massive development of 5.5 million square feet of office, retail and 1,675 residential homes near the Dulles Town Center. These new homes will come to market in 2015. The vote was 8-1. Supervisor Jim Burton cast the lone dissenting vote.

If you connect the dots, it is clear that there will be a robust supply of homes for the next 5 to 7 years. In fact, I am confident there will be an oversupply of homes. When supply exceeds demand, home owners see their pricing power and paper profits vanish.

Home prices in Loudoun are not going to go up in the next 8 years. If you are buying a new home, stay firm and negotiate hard with the builders. The buyer has the upper hand. If the builder demands a lot premium, stop the negotiation and walk out. Dont flush your money down the toilet. Most likely, the builder will call you back after 2 or 3 weeks.

[EuroExpat]

Hasn't it been like this for years?

[katyusha25]

Also, I'm guessing this doesn't apply to homes that have been here 50 + years?

[JD984]

I think it's hard to say how this plays out. Depends not only on a lot of macro-economic factors, but also on what gets built where, and the extent to which people prefer new construction to buying a homes that's already been lived in.

In my neck of the woods, there's a semi-custom builder who both builds new developments of 8-10 homes periodically and builds on individual lots. Most of the houses these days seem to be the same 5-10 models. He's built enough of the same type of house that, at any one time, you can probably either buy a new house from him or purchase a very similar house from a current owner that's less than 10 years old for substantially less somewhere in Vienna or McLean. Even though people must know they're buying the SFH equivalent of the new car that depreciates the second you drive it off the lot, he keeps selling new homes. I guess people think they are in good locations and want new construction.

[Caladium]

Originally Posted by EuroExpat

Hasn't it been like this for years?

Yup, I remember hearing the same thing when Cascades was built back in the mid '90s. It was waaaaaay too many homes, people said. And they were priced waaaaay too high ($150-250). They will never sell, and if you are foolish enough to buy one, you will never be able to sell it and make back the money you paid for it.

[shamrock847]

Originally Posted by Victor-in-Fairfax

If you connect the dots, it is clear that there will be a robust supply of homes for the next 5 to 7 years. In fact, I am confident there will be an oversupply of homes. When supply exceeds demand, home owners see their pricing power and paper profits vanish.

Home prices in Loudoun are not going to go up in the next 8 years. If you are buying a new home, stay firm and negotiate hard with the builders. The buyer has the upper hand. If the builder demands a lot premium, stop the negotiation and walk out. Dont flush your money down the toilet. Most likely, the builder will call you back after 2 or 3 weeks.

I agree buyers should negotiate hard with builders or any other sellers. I'd rather miss out on a house (there are always more) than get stuck with a bad deal, in any location or any type of market.

However, I see two problems with your logic about the direction of home prices.

First, new construction, even in large amounts, doesn't equal oversupply. You are making a huge assumption that supply will outstrip demand by such a large amount to cause flat to declining prices. Building several thousand more homes, in a county with several hundred thousand people, in a region with several million is not by itself a very strong indication of oversupply. If the demand for the new homes is there, which is possible given the strong regional economy, population growth/migration, increasing transit options (silver line etc), then the market will absorb the increased number of homes without putting downward pressure on prices. If you could show trends of homes spending longer on the market or builders dropping prices to undercut sales of existing homes in Loudoun while trends moved in another direction in different areas you might be on to something.

Second, assuming you are right about the oversupply, then the problem will impact the whole NoVA region, not just a single county. Many home buyers consider more than one county, especially in the early stages of their search. This is especially true with large counties like Loudoun where many neighborhoods are much closer to neighborhoods in other counties than they are to each other. If prices in Loudoun were to significantly underperform nearby areas such as Fairfax due to oversupply, over time increasing numbers of buyers would be attracted to the greater value for their money in Loudoun. As a result, demand there would be stabilized somewhat by these "bargain hunters" while it would be weakened in other areas as a result of these buyers leaving those markets. At a minimum, western Fairfax county and northern Prince William would be impacted because it is a relatively easy trade off for buyers there to consider the nearly parts of Loudoun county.

[marie5v]

Interesting, because just a few days ago I was in another state half-way across the country and someone was complaining about all the Toll Brothers homes going up. Who are these brothers and how do they manage to keep building stuff all over the country in places where no one wants them to build stuff?

[Victor-in-Fairfax]

Originally Posted by shamrock847

However, I see two problems with your logic about the direction of home prices.

First, new construction, even in large amounts, doesn't equal oversupply. You are making a huge assumption that supply will outstrip demand by such a large amount to cause flat to declining prices. Building several thousand more homes, in a county with several hundred thousand people, in a region with several million is not by itself a very strong indication of oversupply.

Your argument has some merit. However, my initial post did not mention homes being dumped on the market due to resale, foreclosure, short sales etc. These homes will add to the inventory.

Inventory plays a huge role in housing prices. My point is the home inventory pipeline in Loudoun County is extremely robust. Buyer beware.

[Victor-in-Fairfax]

Toll Brothers is a sales and marketing machine. I give them 10 out 10 in this effort.

They sell lots and collect the deposit 6 to 8 months in advance. In other words, they rarely build a home without a contract. This shifts the entire risk to the home buyer. By risk I mean, the interest rate and home price risk.

[Caladium]

Originally Posted by Victor-in-Fairfax

Inventory plays a huge role in housing prices. My point is the home inventory pipeline in Loudoun County is extremely robust. Buyer beware.

What parts of Loudoun are you talking about? In Cascades people people complain about the low inventory. Of course, it's all resales in my neck of the county--maybe that's a factor?