NOVA Homes are still Way Overvalued. Here is the proof!! (Fairfax: real estate, 2013)

[spidercharm]

These are sample of homes from key NoVa towns (Fairfax, Hendon etc, same goes for Vienna and Mclean..probably even worse) Keep in mind I have picked homes where list price/assessment ratio was lowest. So, they reflect the highly "motivated" sellers and the "best" value in the market.

Now, I don't see that 2000-2007 period was any better than 90's in terms of growth in income and living standard. If anything 90's was a better period and home values didn't change much then year-over-year, may be a modest 1% yearly increase.

I am willing to bet we see it drop further by >40% ...now the question is not IF but WHEN....

House 1:
Original Price: 313,000 (1988-Built)

Assessment History:

2009 $568,370
2008 $631,740
2007 $635,240
2006 $753,730
2005 $641,160
2004 $489,850
2003 $377,390
2002 $366,255
2001 $342,295
2000 $299,210

Do I need to say that > 2000 was a bubble? Home not worth more than 350k looking at appreciation from 1988-2000..List price:>600k

House 2:
Original Price: 168,000 (1986-Built)

Sales:

11/03/1997 $255,000
11/06/1986 $168,000

Assessment History:

2009 $491,550
2008 $514,110
2007 $559,050
2006 $631,200
2005 $520,170
2004 $416,805
2003 $385,930
2002 $344,580
2001 $287,150
2000 $251,005

Do I need to say that > 2000 was a bubble? Home not worth more than 270k looking at appreciation from 1986-2000..List price:>500k

[Flamingo13]

That really doesn't prove much - costs of everything are higher. Most likely remodeling has been done, etc.

Do you honestly think they shouldn't cost more than the original purchase price?

[spidercharm]

Originally Posted by Flamingo13

That really doesn't prove much - costs of everything are higher. Most likely remodeling has been done, etc.

Do you honestly think they shouldn't cost more than the original purchase price?

Remodeling is fine..I understand. But, these don't have any remodeling and it's a same story for every home I see. Plus, I understand inflation but that averaged 2-3% in last several years. And let's not forget there was similiar inflation in 90's if I remember correctly. What changed except for irrational exuberance??

Honestly, I see land values slightly go up and building value go down due to depreciation (old construction, maintenace cost, replacement etc.). this should balance each other.

But, even at the other extreme, I don't see the total value going up over 1-2% a year. We still are in >15% zone...way way way over...

[sls76]

I'm by no means a bull on housing (in fact we're renting after six years of owning), but I'm not sure you've offered proof that NOVA homes are "way overvalued". If I am properly operating my calculator, your two examples have average annual appreciations of roughly 3% and 5% respectively (assuming the current assessment = market value which is doubtful). As Flamingo13 points out, who knows what the homeowners may have done to update or remodel the homes. My old condo in Tysons Corner originally sold for $205k in 1999. It's current assessment is around $385k. My guess is it will be worth less than that in a year, but I doubt we're looking at 40% less.

[spidercharm]

Originally Posted by sls76

I'm by no means a bull on housing (in fact we're renting after six years of owning), but I'm not sure you've offered proof that NOVA homes are "way overvalued". If I am properly operating my calculator, your two examples have average annual appreciations of roughly 3% and 5% respectively (assuming the current assessment = market value which is doubtful). As Flamingo13 points out, who knows what the homeowners may have done to update or remodel the homes. My old condo in Tysons Corner originally sold for $205k in 1999. It's current assessment is around $385k. My guess is it will be worth less than that in a year, but I doubt we're looking at 40% less.

It used to be the case that selling prices were close to assessment values when things were realistic before 2000. And you are correct in that it diverged lot more when people started bidding them way up. And we landed where we are...(people bid higher that pushes up the next year assessments...and so on.....)

I think in your example, 1999 should be a great base price before all this started. You can arrive at 225-275k value depending on 1-3% appreciation. Now, if we arrive at that trendline in 2009, 2010 or 2011 is anybody's guess...However, where economy is going unfortunately with unemployment etc, we may very well reach there faster than we think.

[Shabba Doo]

Originally Posted by spidercharm

I think in your example, 1999 should be a great base price before all this started. You can arrive at 225-275k value depending on 1-3% appreciation. Now, if we arrive at that trendline in 2009, 2010 or 2011 is anybody's guess...However, where economy is going unfortunately with unemployment etc, we may very well reach there faster than we think.

This is the big "x-factor" that has yet to play out in NoVA. Given that Obama plans to cut the deficit in half by 2013, I suspect that there will be serious budget cuts that will leave many more unemployed in this area as a result.

[Denton56]

The value of any house is what someone is willing to pay for it. Very simple. A house is not over valued at any price, if people think it's worth that amount and buy it. The market decides the value of everything, including houses.

[finecognac]

Originally Posted by Denton56

The value of any house is what someone is willing to pay for it. Very simple. A house is not over valued at any price, if people think it's worth that amount and buy it. The market decides the value of everything, including houses.

By your logic there was never a housing bubble. We are all fine, there's no financial crisis, we are not in recession. It's all part of people imagination !

Real estate values are like values of any commodity and is ruled by supply and demand. Sometimes, the commodity market is manipulated by people creating artificial demand for it. During the bubble - or no bubble by your logic- Speculators created artificial demand for houses and that caused the price go through the roof. And like any manipulation, prices will go down to where it should be.

[oneasterisk]

Originally Posted by finecognac

And like any manipulation, prices will go down to where it should be.

But who sets what the price should be? The market does. The market, being those who are buying.

The demand during the bubble wasn't artificial. People wanted homes. Lenders were handing out loans so those people could get into those homes. Now that the lenders are being more stringent on who gets loans, less people are buying because less people are qualified for the loans. Also the slower economy has people fearful of making a large purchase. Less people buying, means less demand.

NOVA isn't immune to the cuts, but this area is very resilient. Unemployment here is usually lower than compared to the national average.

[finecognac]

Originally Posted by oneasterisk

But who sets what the price should be? The market does. The market, being those who are buying.

Not really. The price of the house you buy should be under 4 times your salary. Market can be affected by manipulation and psychological factor i.e getting in before you can't afford it any more. Say, a speculation who thinks the house prices will continue to appreciate and is willing to plunge down 10K deposit with the intention to selling it months later or walk away if house price depreciate, is that speculator part of the market ? He took the house away from the market and that influenced the price.