Do You Think Housing Cost Will Go Up or Down???

[NC211]

Do I think housing costs will go up or down? Tough question, but some analytical material can be used to determine where the market is as compared to where it used to be.

Interest rates: As Airjay pointed out, the "creative" lending market has been wiped out (with good reason too). That does impact the flow of available capital for buying power. Regulations going into place because of those financial instruments should keep most of them from returning anytime soon. The desire for the 30 year fixed rate mortgage came back strong because it was the easiest on the monthly wallet. Yield curves got out of whack, whereby "time" lost it's value. What do I mean by that? The rate differences between a 15 year mortgage and a 30 year mortgage got pinched. The key indicator to watch is the 10 year treasury yield, which is making a comeback. The higher it goes, the wider that gap will get again. The wider that gap gets, the increasing need for the "creative" instruments to return to the market to keep capital moving will happen. So, we'll see. That being said, as elluded to earlier, the key difference between now and back then is the speculative inventory levels. Builders who survived the crash learned a valuable leason - don't speculate beyond what you can write off as a total loss. For NoVa, inventory levels won't get out of whack because the land costs are too high for speculators to go nuts. So, with the rising interest rates, values will try to balance for the buying power of the dollar. However, the thin inventory of availablity will counter that balancing act to stabilize the prices with a more traditional appreciation level year over year. What I am saying is, the 20% jumps in value are likely starting to thin out. Those 20% jumps are a reaction of the recession to bring prices closer to historical norms on a per square foot basis only. Houses got smaller here during the recession. Just look around Loudoun. 2006 homes, 5,000sf for $900,000 ($180/ft). 2013 homes, 4,000sf for $685,000 ($171/ft). The 20% jumps are for those who bought those new 4,000sf homes around 2010-2011 for around $550,000 ($137.50/ft). You see the wide gap between $137 and $171? That's where the room was for the jump, but you see the $180 for a 2006 home with 5,000sf? You see the peak ceiling. These are average prices, not specifics that include upgrades and such. Several of those 5,000sf homes were over $1,000,000. One of the things builders are now doing to counter the market acceptance of the 4,000sf home, which works in favor of the builder as they can get more homes on the land now, is to not offer a finished basement as part of the price. So, what they're doing is saying a 4,000sf home, but pricing it with the mindset of the true peak of the boom back in 2006 against those $1,000,000 homes, all on a per square foot basis. Why? Because all of the distressed land deals that happened in 09-11' have been developed already. There are no more of these neighborhoods left were a local home builder had to dump their project to avoid going bankrupt. The cheaper the land, the cheaper the cost to the builder, and the more likely certain amenities will be included in the home to attract a buyer. Those days are gone. It's now back to full market price for the land.

Those who financed with an FHA loan during the bottom of the rate cycle, are likely to be the ones who will have the highest values going forward (assuming rates don't tank again). Why? Because FHA loans have a unique feature in them that allow for someone else to assume the loan with the purchase of the home. Those borrowers have essentially created, at a minimum, value protection with their debt.

At the end of the day, for us folks living in the DC region, I doubt housing costs are going to go anywhere but up for a while. Housing is all about jobs. When your main local employer has over 316,000,000 "customers" and growing at a net average of 6,000 per day, I don't really care what the media says, the employer isn't going to shrink. If one budget allocation get's cut, that just means that money is being shifted to something else that is less visable to the public's attention.

[ISU345]

Constantly rising housing cost are the BIGGEST reason I am leaving (Traffic is No 2). I make a decent salary for almost anywhere else in the Country except in DC. I have a professional job and a Masters degree. It was fun in my 20s, but to reach normal life goals like buying a house and raising a family...NO WAY will it cover me here. I have a good community here but I just cant survive long term without moving. Lots of people are being pushed out because they can't do it anymore. These are smart people with good jobs that have realized owning property in NoVA is out of their reach.

[frostopsy]

Originally Posted by ISU345

Constantly rising housing cost are the BIGGEST reason I am leaving (Traffic is No 2). I make a decent salary for almost anywhere else in the Country except in DC. I have a professional job and a Masters degree. It was fun in my 20s, but to reach normal life goals like buying a house and raising a family...NO WAY will it cover me here. I have a good community here but I just cant survive long term without moving. Lots of people are being pushed out because they can't do it anymore. These are smart people with good jobs that have realized owning property in NoVA is out of their reach.

+1 on that. I know I gripe a lot on here, but in reality this is a major problem for me. Do you commute 2+ hours everyday from some bedroom community, or be house poor and be closer to work?

[nokomiscyclist]

Originally Posted by ISU345

These are smart people with good jobs that have realized owning property in NoVA is out of their reach.

We could have stayed in NoVA and bought a house since we were a dual income (one six figures, one high five figures), no kid household but when we started looking at houses we just couldn't see carrying a $500-650K mortgage and starting a family there and still being happy there. Neither of us had "NoVA/DC Only" skillsets (read into that what you want) so finding jobs elsewhere was not a problem for us but I could see how it would be for some people. We make the same money (more when you take into consideration the lower COL) and haven't been happier.

[NC211]

I think as the economy continues to strengthen throughout the country, DC is likely to see some of the folks who had to come here during the recession, returning home. DC is were jobs are, and especially over the past 5 years. Personally speaking, if I could do what I do now back in NC, we'd be there too. I think Charlotte is probably in our 5 year future. Not going anywhere though until after the general election in 2 years. History tends to repeat itself in terms of the overall health of the economy and replacing the sitting president.