NOVA Homes are still Way Overvalued. Here is the proof!! (Winchester: for sale, foreclosures)

[05c6400]

This is probably one of the better posts I have read on this forum. I think another contributor to over inflated home prices is the subprime lending that was booming for the past several years and I think most home sellers are still living in that "subprime over inflated home price world."

I have lived in Fairfax County for over 30 years and I cannot remember a time when a decent income did not afford you a SFH or even a brand new SFH. The market needs to look in the mirror and face reality... prices need to drop to match incomes based on a single income (maybe wishful thinking). Dual income earners may be able to afford the mortgage for a $600K SFH easily, but if one lost their job I doubt the other will be able to afford the mortgage payment, example dual total income of $200K, house is $600K, $100K income means a $300K house. Life happens married, living together etc…. one day all of that changes...divorced, widowed etc...

[RW333]

While lending practices are the central culprit, there's an independent factor that has driven up prices as a reflection of real (or mostly real) costs: buyers' inflated expectations.

A Mother Jones article of 2005 This New House | Mother Jones notes that the size of the average new home grew by 50% from 1970 to 2005, and by 1247 sq.ft. between 1950 and 2005, during which time the average household size shrank by one person.

The common expectation of newer, larger, brighter, shiner, more luxurious homes comes at a real cost, measured in spa resort bathrooms and kitchens with standard issue acres of granite and tumbled limestone and restaurant style appliances (for serving take-out food.) Multi-car garages, central air conditioning, and bedrooms for every child are standard issue for new low-income housing, and it seems all housing is of two brands: "luxury" and squalid. Everything new is of course "luxury" and anything old --lest it fall into the squalid "fixer-upper" camp-- is made flashy and luxurious on the same model before it is marketed.

When people of modest income and prospects, barely starting out in life, insist on multiple guest bedrooms and multiple baths and scrapbooking rooms and multiple car garages and home offices (despite not working from home) and finishes that must approach HGTV Dream Home levels, there's an impact in cost irrespective of any subprime shenanigans.

The standard of home ownership has changed because the standard home has itself inflated in size and fittings over time.

Expectation is hardly the biggest factor in the current mess, but, despite some recent indications in a slight "correction" in the new home size trend, the average new home of today is far removed from the average new home of 1970 and all the more from the average new home of 1950.

[Margery]

Good post, RW333. I have been a Realtor for 13 years and before that I was in mortgage banking for 10 years and expectations of buyers have changed over the years. I was raised by parents who lived through the Depression and was taught "if you can't afford it, don't buy it". Unfortunately the loose lending requirements since the early 2000's coupled with the sense of entitlement of the many buyers who purchased a $600,000 home with an income of $120,000 has led to the present day woes. I have shown homes in the upper brackets with rooms that were not furnished because the owners, now in foreclosure or in a short sale position, could not afford furniture. We all need to learn to live within our means and stop trying to impress others.

[MKing]

Originally Posted by radcliffi

Really, the only thing you need to do is to look at the Case-Schiller housing index for the DC area. The graph does reflect a bump as egregious as a camel's hump. It has come back down one fifth of the way on the other side. Schiller - who has THE record on calling house price declines -- opines a further 25% DC area drop through the rest of 2009, with slower price declines through 2015. We will get back to the 1998 - plus - inflation adjustment of 1% per year: fundamentals simply will not support anything else.

To calculate how much a house in Arlington will be worth in 2012, take its selling price in 1998 and escalate by 1% fourteen times.

Anybody who tells you anything different is looking for commission gravy.

Don't take my word for it. Buy NOW! they're not making any more LAND! and check out your equity position in three years.

Why is the inflation adjustment just 1% per year? Just curious as to where you read/got that number. Thanks.

[Skapov]

Originally Posted by RW333

The common expectation of newer, larger, brighter, shiner, more luxurious homes comes at a real cost, measured in spa resort bathrooms and kitchens with standard issue acres of granite and tumbled limestone and restaurant style appliances (for serving take-out food.) Multi-car garages, central air conditioning, and bedrooms for every child are standard issue for new low-income housing, and it seems all housing is of two brands: "luxury" and squalid. Everything new is of course "luxury" and anything old --lest it fall into the squalid "fixer-upper" camp-- is made flashy and luxurious on the same model before it is marketed.

When people of modest income and prospects, barely starting out in life, insist on multiple guest bedrooms and multiple baths and scrapbooking rooms and multiple car garages and home offices (despite not working from home) and finishes that must approach HGTV Dream Home levels, there's an impact in cost irrespective of any subprime shenanigans.

EXACTLY, and this is a well-articulated point! My husband & I just bought a home but the kitchen does not have Stainless-Steel Appliances, or Granite Countertops, and due to watching HGTV all these years that's my expectation. And so, now we'll probably spend several thousand dollars replacing perfectly functional appliances, to get that "stylish" shiny HGTV-look.

[05c6400]

Yes, homes have grown in size. However, looking at most builder's websites you would see the same home that is built in West Virginia and sells for $180K and Fairfax it will sell for $500K+. Again, location is important, but being robbed is not.

[claremarie]

You are free to buy the home in West Virginia. But if you want to buy it in Fairfax, it's not going to cost $180K. If buyers in Fairfax are willing to pay $500K, that's what it's worth in Fairfax. There is no robbery involved. Why is this so hard to understand?
If you've lived in Fairfax for 30 years, then you know perfectly well that even 20 years ago, when our family entered the housing market, it took two (reasonably good) incomes for first-time buyers to purchase a SFH in the area. A brand-new SFH was simply out of reach, unless it was located well outside the Beltway.

[RW333]

If buyers in Fairfax are willing to pay $500K, that's what it's worth in Fairfax. There is no robbery involved. Why is this so hard to understand?

Yes. Like it or not, "what the market will bear" determines the cost of houses. Whether that cost is in line with what a buyer thinks a property is worth in some broader sense is a different point; but if enough people are willing to pay $500,000 for a house of a given sort in a given area, price is unaffected by those whose instincts or spreadsheets or pocketbooks tell them otherwise.

As much as someone might insist that Rolex watches are overpriced, bound for a comeuppance, an affront to good sense, or more than one can afford or will spend, the price remains unaffected by that opinion so long as enough people think otherwise and are willing to shell out what's being asked for them. Same with houses.

[05c6400]

It is not hard to understand. Just my personal opinion on builders/developers.

[typical guy]

Now, you can buy an empty lot and have it built to suit cheaper than you can buy into an up-and-coming housing development.