A Deal With The Housing Bubble Devil
Readers suggested a topic on proximity and the housing bubble. “I’m in Washington, DC. I’ve been watching the local market here since 2004. In the past year, I’ve noticed the exurbs and suburbs getting hit really hard. Parts of Prince William County are down 50+% since the peak, and the county as a whole is currently down 30% YOY. PWC had a lot of subprime lending and they were one of the first areas to start buckling under pressure.”
“Close-in desirable neighborhoods in the District are still faring fairly well. They are down 5-10% since the peak, but seem to be holding fairly steady. During the boom, these areas rose just as much as everywhere else. These neighborhoods are still running with 6 months supply or less of inventory. Foreclosures are non-existent.”
“My question is, when will these areas drop? Will they ever drop like the suburbs/exurbs? How does the increased desirablilty of living in the city (improved city amenities compared to pre-bubble times, walkable communities, high price of petrol making mass transit more desirable) play into the downturn? Will these city areas remain expensive in this post-bubble world?”
A reply, “I believe there has been a structural shift favoring close-in areas in major metro areas where the close in areas are not social landfills. The demand for such areas now exceeds the supply, while for McMansion exurbs the opposite is true — there is plenty to go around.”
“Cyclically, however, the prices are still too high close in, just like everywhere else.” “Let’s take the NYC case. When we were looking to buy a house in the early 1990s, a 1915 rowhouse without parking in Windsor Terrace Brooklyn, a 1940s rowhouse with a rear garage and front garden in further out (but still in NYC) Forest Hills Queens, and an early 1960s Levit ranch in the suburbs of Long Island, all cost the same — about $200 K.”
“I expect the Brooklyn house I live in to sell for more than the other two in the other two unless the state really succeeds in destroying NYC (they’ll try). But it sure as hell won’t sell for $1 million in todays’ dollars, the recent price.”
“BTW, with what may happen to mass transit and the price of gas, I’m glad I live close enough to bike the nine miles to work. But the ideal commute is one I heard about one guy having in DC. He bikes the Potomac, picks up a boat at a boathouse, rows to another boathouse, picks up another bike, and rides to work. People pay big bucks to go on vacation to do things like that. He gets to do it every day.”
To which was said. “By day three of this I’d be preparing to kill myself. A bit of this on vacation is one thing. Day after life-sucking day of this would get really old, really fast. At least on public transportation I could read or knit.”
Another said, “Although winter would be challenging….there are people who do that here (OR), no matter what. January must be interesting.”
One posted, “My take (from someone living in the exurbs, though not commuting to the city) is that the exurbs’ curve is more extreme, and ahead of the city areas by about a year or two. It’s more extreme because the exurbs see more expansion during boom times, and conversely more contraction during bust times.”
“Downtown DC is declining somewhat now I think. It’ll continue declining after the economy levels off (*if* if levels off). Eventually the exurbs will start to pick up again, then they city.”
“Generally it depends on the area, especially the case with DC which is so affected by government policy. Loudoun and Fairfax counties were the biggest boom this time due to military and security contracting. My guess is that MD will boom bigger than NoVA next time, due to health care being the next big government thing, and the decline of the military as we pull out of Iraq.”
And another, “Arguably we’ve had an oversupply of housing constructed. Nowhere near as bad as MIAMI, but it’s still there. Because bluefields developments are easier than infill or highrise construction, the supply of those relative to the the demand of those who would trade commuting time for grass yards and HOAs has risen more than the supply of ‘urban living’ or close in suburban developments.”
“I don’t think that we’re seeing what many here have posited, that there is decline in the relative demand for the (energy and time) inefficient exurban living. I’m sure that some have overestimated their ability to afford the time and money of a long commute. But I believe that relative price decline differentials between exurb and inner suburb/urban markets is mostly supply, not demand driven.”
One points to commutes. “It would be interesting to see a study on comute/travel/traffic in the various cities as this seems to directly affect housing prices.”
“I’ve spent a lot of time in the DC area and the traffic there has to be seen to be believed. Just horrible. But the same can be said for parts of Atlanta as well. NY is tough but traffic does move outside the city - at least it does on the NJ turnpike (survive that and you can make it anywhere). Boston is in a class of its own though, the worst place I’ve ever driven in, a nice city but …”
The Philadelphia Inquirer. “The view at sundown from the McCausland family home paints an unlikely picture of how high gasoline prices are deflating the modern-day American suburban dream.”
“When Brian and Dawn McCausland bought this Colonial on a half acre in Montgomery County in 2004, they made a deal with the devil during a sky-high housing market: They and their four daughters would live here, but Brian would commute 100 miles round-trip to his job as an insurance adjuster in Delaware County.”
“But now, with gas averaging $3.30 and rising, the McCausland dream is getting soaked at the pump to the tune of $300 a month, or $3,600 a year, double their cost four years ago. They are among many families of modest means who took on big commutes from exurbia for a taste of upward mobility.”
“‘My yearly increases in my salary and bonuses are only going to cover the increase in the cost of gas,’ said McCausland, who by now, he’d be more financially secure.”
“‘I’m really not making any more than I had been,’ said McCausland. ‘I’m not getting ahead.’”
“Regional highway statistics suggest super commutes grew in number during the recent real estate boom. An estimated 20,000 workers travel 40 miles or more each way to jobs in Southeastern Pennsylvania and South Jersey, said Don Shanis, deputy executive director of the Delaware Valley Regional Planning Commission.”
“In real estate parlance, families like the McCauslands ‘drive to qualify’ for a mortgage; the big house they want is affordable only in far-out communities.”
“Dawn McCausland reentered the workforce as gas began biting into the budget. The family spends $7,000 of gross income on school tuition, uniforms, books and activity fees. An additional $9,000 covers Brian’s employee contribution to health insurance coverage for the family.”
“‘We’re not living a lavish lifestyle, but it all goes to bills,’ McCausland said.”
“‘I did expect to have a beautiful house, a loving husband,’ she said. ‘But I wanted to be able to go to the store and buy school uniforms and not worry about ‘OK, how many years can I get out of this?’”
“Instead, she doesn’t even fill the minivan gas tank. ‘I just expected things to always be even keel,’ she said.”
“Seated beside her at their kitchen table, Brian shrugged his shoulders. ‘It’s America,’ he said. ‘You think you’re always going to work hard and get ahead. And it’s not always that way.’”
Here’s the freakin’ shocker.
Give up the big house, and rent near work, and save the rest. You will get ahead, and won’t have the commute from hell either.
What a mind-f*ck, eh?
Work smart, not hard. Pops commuted across Chicago for 35 years, most often for the midnight shift at a power plant. Through snowstorms, race riots, etc. He implored me to live close to work and not get into that situation.
I respect what he did for my family, so much so that I heeded his advice and over the course of the last five years positioned myself into a scant three mile commute. Biking to work is great, for a while I had the pleasure of biking to work along Lake Michigan from Hollywood to Oak St. Biked through the winter too - coldest temp was seven below - only snow drifts stopped me - but then only for a day until the path was plowed.
These people betting on the hyper-commuting thing are playing a sucker’s game. They are trying to meet today’s challenges using yesterday’s solutions. These FBs must start to accept the new reality - the Cleaver-esqe life they seek died a long time ago. Commuting should figure prominently into one’s choice of location. Sure, I know some can work from home - and that’s great for them - but the vast majority cannot.
Betting against commuting is a very good move.
However, if you change jobs reasonably often, which is virtually assured these days, this may not always be possible.
However, agree with your sentiment.
My hedge was to locate within biking distance from the city’s largest concentration of jobs (The Loop) and also be on mass transit corridors to two other sizeable commercial nodes (O’Hare area and Niles/Skokie). It’s not a sure thing but it should allow me to snag at least temproary employment without resorting to an immediate move.
Edgewater is close to Devon, and the Russian Jewish corridor next door.
And the groceries, mmmmmmmmm, the groceries. Drool.
OMG - PLEASE don’t mention the groceries - We can’t get kosher POOP here except for Hebrew Nationals once in a while. Smoked fish, good sausage, half sours, pickled tomatos - all exist only in my fevered imagination.
Two words for you, my dear friend: The Internet.
(Not Jewish but lived in New York long enough. That, and my Jewish friends happily gorge at my place even though, strictly speaking, I am not kosher.)
Sigh… There isn’t anything but 2/3 day service offered here by any of the express shippers + 112 degree summer temperatures, precludes a lot of the time sensitive stuff… I’ve started manufacturing my own corned beef (no nitrites so it’s pink-gray, but it tastes GOOD!) and started pickling my own veggies. I think I might try smoking mullet this summer since I’m only 150 miles from Mobile and great seafood. Schmears - I also make a kinda panir - kinda cream cheese home spread - not bad, and I render my own schmaltz when needed (the crispies are a big plus) for chopped liver. Overall though, it’s not the same as a good Jewish deli in the City.
“If you change jobs reasonably often, [betting against commuting] may not always be possible.”
If you change jobs reasonably often, don’t buy a house.
Agreed. That was my point.
Cleaver-esqe life they seek died a long time ago.- Amen Brother ! That’s what I try to tell my siblings. Like it or not it not it is not 1950 and the US is not the only economic powerhouse in the word.
Gee Wally,
Where’d our hegemony go?
The Added benefit is YOU will be the First on they will call in an Emergency to work OT……
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He implored me to live close to work and not get into that situation.
Yup, I experienced that first hand at my previous job (working for a govt). I was walking distance to the office (10 blocks or so) and would always be the one to get the call to go in and look something over during off hours. Although that sounds like a negative, it really wasn’t, because of my willingness/ability to drop in quickly, I was given much more leeway with the rest of my responsiblities, and also given new and more important responsbilities moving forward.
Living close to work is a must (imho); I now work from home most of the time, so that’s not an issue. But my GF still works in an office; we moved into a new place after I changed jobs, and she now has a 1 mile commute to work. Just fantastic; you can’t believe how much time you get back in your life with commutes that are that short!
If they needed me to come in I would have to do so - no matter where I lived - that’s the nature of my job. While I get your point, I think it is a really weak reason not to try to minimize commuting costs and time. Plan to make the average workday the best it can be - and the occassional extra day will take care of itself.
A guy my wife works with here in Seattle commutes (daily) 205 miles round trip from Ellensburg, Wa. This entails going over Snoqualmie Pass in the middle of winter; this year the pass had over 150″ of snow on the ground and was closed for 4 days straight at one point. Just insane, especially since he is driving a big Ford truck.
You’ve got to be f*cking joking.
205 miles daily? I’d slit my wrists in a microsecond.
My mother commutes to Santa Monica from Fullerton every day. It is about 3 hours round trip in heavy traffic and she has been doing it ever since I was in high school (20 years ago). She tried moving closer to work, but wound up coming back to OC because she didn’t like the crime and the cramped feel of the Westside. Also she missed being near her extended family in the OC.
She’s now on the verge of retirement and the only reason I think she has stood the drive this long is simply force of habit. The company hasn’t treated her very well in terms of benefits but I think she believes she can’t earn as much money elsewhere (which I think isn’t true but she won’t listen to me).
It’s a shameful trend when companies locate in expensive, tony areas of large cities and expect to pay low salaries to employees who have to drive phenomenal distances to get to work, or pay exorbitant rents. Thankfully, I can work from home 80% of the time, and only have to commute one day a week. Save a tremendous amount of money in gas, dry cleaning, and eating out.
A few people here in my little town commute 115 miles each way daily for jobs. At least it’s all freeway and very very little traffic. Still…the price of gas here is $3.49 for midgrade, so it’s got to be killing them.
In Atlanta the average commute (on a good day) is 30-45 minutes one way. 1 hour commutes each way are extremely common. If you value your life, you will not ride a bicycle on the streets here. If you don’t drive a fairly large vehicle, you will get squashed like a bug. I think the best thing to own here, if you are into defensive driving, would be a dump truck. People here just drive wherever they please on the road, and do not care if you are already in the lane they want to be in. I almost got hit 5 times yesterday driving about 5 miles from Costco to the library. First a minivan that wanted to be in my lane almost hit me 3 different times , then a BMW sportcar pulled out at parade speed in front of me from a shopping center, followed by another minivan pulling out in front of me from the same shopping center. This was in broad daylight. But these drivers apparently could not see my medium sized SUV or hear my horn honking. And its like that ALL of the time trying to drive around here.
I read that and think that this isn’t about the parents, it’s about giving their kids the best upbringing they can in the best environment they can afford. Most of the close-in areas to D.C are hardly suitable for raising kids. In fact, many of them aren’t suitable for adults either. Everyone forget the famous New York reporter that was killed in his affluent D.C neighborhood several years ago?
Crime happens everywhere. I know people that live all over the DC metro area, you can’t get away from crime if you live anywhere within commuting distance of a big city. The suburban mindset is to run from crime to the farthest out suburb one can find, but this only gives a false sense of security at best. Instead of running, why not take a stand and do something to fix the problem? You would be surprised what community organization would do. Raising kids near a big city is actually better, it prepares them for the real world. Sheltering them in some “Leave it to Beaver” fantasy world is hardly healthy.
Back in 1974, in LA, I knew a guy who was in sales and he had just gotten a new job requiring a one-hr commute from the far west end of the San Fernando Valley down to the OC somewhere. It just amazed me, but when you live and work in LA you really don’t knowwhere you’ll end up and the job market there is just huge and so spread out. Gas was still under .50 IIRC. Still, the idea of a one-hour commute just slayed me and I knew I never wanted to live like that.
He died of a heart attack at 42 not long after I came to Montana. Everyone smoked and drank pretty heavily back in the day.
It is extraordinary that people don’t put a value on their free time when buying a house. You shouldn’t necessarily move every time you get a new job - even if you are in an apartment. There are other reasons to choose to live in a particular location. But to pick “the size and superficial amemities of a house I can convince a bank to finance” as the primary reason to choose a location? Foolish in the extreme.
It is almost as if the ability to get close to the pictures on the house porn reality shows is all that matters to these people.
Lord yes! Sing it, sister!
Every weekend they’re plucking the lawn, or unflooding the basement, or emancipating the pool, or who knows what at Home Depot?
Where’s the time to enjoy books, whisky, and the opera?
Yeah, but also remember that to some of us working in the yard or the garden IS fun and pleasurable.
“… I don´t want comfort. I want God, I want poetry, I want real danger, I want freedom, I want goodness. I want sin.”
“In fact,” said Mustapha Mond, “you´re claiming the right to be unhappy.”
“All right then,” said the Savage defiantly, “I´m claiming the right to be unhappy.”
“Not to mention the right to grow old and ugly and impotent; the right to have syphilis and cancer; the right to have too little to eat; the right to be lousy; the right to live in constant apprehension of what may happen to-morrow; the right to catch typhoid; the right to be tortured by unspeakable pains of every kind.”
There was a long silence.
“I claim them all,” said the Savage at last.
Mustapha Mond shrugged his shoulders. “You´re welcome,” he said.
I was thinking that had to be “Brave New World” or Logan’s Run. A little too cerebral for Logan’s Run though.
Books? Opera? What channel is that on Comcast? If I can’t watch it on the 53 incher in the family room it isn’t entertainment…. >;)
Which channel is the whisky on?
A friend commutes from Trekula (Temecula) to downtown San Diego, often four hours roundtrip!!! And people flocked to this exsurb to get their 5 and 4, so they could load up on QVC crap, and argue that they couldn’t afford to live closer to their job. No, their ego couldn’t resist the builder’s siren call (lookie how BIG I am!), and now they’re cast against the rocks.
And what a reason to choose a place to live. You actually increase your need for stuff because all your neighbors live there just to have a bigger house too. Reinforced consumerism based on peer pressure.
My dad did an awful commute for a great deal of my childhood, but he did it so we could stay in a little house in my mother’s hometown that was less than 2 miles from my grandparents, 3 sets of great aunts and uncles, mom’s sister and her family and a huge assortment of other cousins. We had cookouts pretty much every summer weekend with nearly as many attendees as we had for Thanksgiving.
And even with as good a reason as that, the commute was still a terrible burden. Tiny little commuter cars and carpools when he could cobble one together were the rule. It hurt his career too.
THIS is exactly why Pension funds are bankrupt in America, so many people stopped smoking and are living longer lives,(collecting more $$$) but most pensions were based on a high percentage of smokers dying early.
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He died of a heart attack at 42 not long after I came to Montana. Everyone smoked and drank pretty heavily back in the day.
I wonder. I am a smoker (though a “light” smoker now), so I feel free to speculate that the health-care costs associated with long-term illnesses like emphysema might equal or exceed the savings gained when smokers die early or suddenly (lung cancer, heart attacks). OTOH, so many ex-smokers become obese that they probably succumb to other long-term illnesses (or heart attacks)…
I guess none of this contradicts your point about pension funds, since they are not the direct source of the health-care dollars.
No, that would not jive with the “study” Philip Morris did for the Czech Republic that it caught a lot of flak for (late 90’s.)
Smokers do indeed put a lot less burden on the health and pension system. They die in short order inspite of the illnesses quoted above.
Smokers live longer, but they live sicker (than non-smokers). That’s one reason for the rising costs of health insurance as well as being a bigger drain on pensions than they used to be.
AZ:
I was escorted by armed guards out the Phillip Morris Headquarters in White plains 15 years ago…they were suing ABC news for $10 billion for libel.
Reason: All i said was why not increase the tax on cigarettes 50cents-$1 a pack to cover any health realted diseases and in exchange nobody can sue the tobacco companies.
My point was we as non-smokers were paying a lot of the health care cost of smoking because cigs were SO CHEAP. Now that gigs at $5-6-7 a pack i don’t care.
If fact that was the basis for the Mississippi lawsuit. They wanted to use cigarette tax money directly for smoking related causes for people on Medicaid, instead of reverting to the general fund.
Logical right? NOPE no one wanted to be the first to admit cigarettes caused lung cancer. Not the governor, the state legislator , not the tobacco companies or lobby not even the Mississippi Senator or representatives…..only one except one lone Attorney general in a backward state.
There are vast legions of people in the city of angles that drive 50 miles to & from work, and most cars get around 20 mpg in typical stop & go traffic, so it’s costing them around $20 per working day for gasoline.
A $10 an hour employee nets around $50 a day for their efforts, after taxes & social security, etc. have been taken out of their paycheck.
It turns out they are really earning around $3.50 per hour…
I wonder how long before they finally catch on to the fact that they are serfs?
Commuting costs should certainly be viewed as a tax!
My bus pass costs me $40 a month. (bus part time, bike part time) Most of my coworkers commute by car. In my particular office most everyone makes the same…or do we?
Not owning a car has boosted my disposable income by a minimum of $2,000 a year (with a paid off beater). If I were to buy a new car I estimate the savings would likely jump to $8,000 a year. Every penny saved from not having a car was plowed into my spec. account. Since last October my spec. account has paid for this year’s trip to Japan in full.
It is no wonder that my coworkers have already started talking about what this year’s raise may or may not be.
So much of people’s problems are tied up with warped senses of what is “normal.”
We consider it “normal” for a single occupant to drive what is essentially a mini-tank to and from work. Total Bullsh**.
Two words: Smart Car
“The family spends $7,000 of gross income on school tuition, uniforms, books and activity fees.”
That is money wasted. Today’s institutionalized school system, whether public or private, essentially brainwashes and indoctrinates our children. That is clearly obvious to anyone who has read John Taylor Gatto.
If you want to pay $7,000+ per year to have your children be brainwashed, rock on, but don’t come crying to me.
Edgewater, enjoy your trip to Japan. I lived there for 10 years, without a car, and saved $20,000 per year, every year, on a very modest salary, with enough extra money to travel back to the U.S. twice a year. In Japan, the cost of a monthly rail pass between employee’s home and office is automatically added to the monthly salary. That’s the way to do things. Buid a wonderful public transit system, and then pay people to use it.
Thanks, BV, its my second trip. I go mostly to ride the rails, actually, just ride around from place to place and take in the sights. It’s most relaxing there.
Um, did you leave out the fact that you didn’t have to pay taxes to either Japan or the US as an ex-pat there?
10% was deducted by the Japanese nation govt. right off the top, same way as in U.S. with social security.
Plus Ward taxes on top of that.
Plus payment to participate in Japanese national health insurance.
Plus I filed a US tax return each year, but because my annual salary was less than $70,000, I didn’t have to pay U.S. taxes.
I don’t think americans realize just how much cheaper life becomes without a car.
BV,
Thank you for the informative and interesting response.
Were you an English teacher? If I were single I’d go back to Japan (I’m half Japanese and speak Nihongo) live near my family and take one of the plentiful teaching jobs there. I think their paying about 24,000 yen a month with lodging and travel included.
I gladly paid for private school and my kid was not brainwashed. First she went to a french school for 3 years and then to a high school for the arts where she had rigorous academics and learned to be an excellent writer. She’s now in college where she goes to what is known as the great books school. There was no comparison to the public schools.
“Great books school”? The University of Chicago?
Was, dude, was.
Until the moron from Princeton, Sonnenschein, took an axe to it. Recovering though.
That book, Your Money or Your Life, has a great chapter on figuring what you’re really earning on your job…starting with the costs associated with having that job…commuting, suits or uniforms, lunch costs, childcare,et.al. For salaried folks, you take all the unpaid hours over 40 a week that you work, the associated costs, and divide to find out what you’re really making before taxes and FICA. Can be kind of shocking.
Yeah, so how much does a min wage employee earn under those situations?
It’s absolutely shocking to me that in the higher cost areas that you can get anyone to do anything for under 25/hr. If you have to use your own car, by the time you get done paying for your house and your car, you’re actually losing money. Many (most) would be better off moving to Montana and working a 8/hr job near their homes, houses are 1/5th the cost, gas costs the same, and they might actually have something to keep at the end of the day.
Many of these people in high cost areas are not serfs; they are slaves. They don’t realize that their choice of locale has made them into nothing more then a cog in the wheel for those who can actually afford (or borrow enough to afford) to live in these place. It’s a terrible existence, and one that I think more and more people are coming to realize and understand. Hence, the flight of the lower-middle and middle class from many of these bubble areas. Is that sustainable? I don’t think so, at some point, people are going to realize that we NEED people who make 10/hr to keep these areas going.
Michael were you a member of pi kappa alpha, Berkeley chapter in the early 70’s?
at some point, people are going to realize that we NEED people who make 10/hr to keep these areas going.
Perhaps you’re not from Kalifornia or acquainted with the precept: “Boomer want, Boomer get”.
Big Boomer does not “care” about all the “little people” that bill less that $400/hr. Big Boomer does not “care” about the fact most of his children and grandchildren have already left town, due mainly to deteriorating quality of life and sky-high cost of basic shelter. Big Boomer does not “care” that his mass importation of (illegal) de-facto slave labor is undermining the ability of all those worker peons he’s pi$$ing on to earn a decent wage.
Big Boomer wants “his” expensive toys, pergraniteel McMansion, 6-car garage filled with vintage muscle cars (so he can relive his youth), annual nip-tucks, rack job for the trophy wife, and could give a rat’s patoot about anyone or anything else. If that means forcibly impoverishing everyone else or having to start importing *actual* slaves, so be it.
You will have to pry his bong and Medicare-subsidized Viagra from his cold, dead bejeweled hands.
I see you feel the same as me about boomers in clownafornia. I am especially amused with the prop 13 that allowed the boomers to have enough tax money for their police/fire/schools, and makes it so they don’t have to help pay for the next generation. Nice way to screw over the next generation that lives with the worst schools in the nation so they can go off on their next spending spree collection such items as , pet rocks, beeney babies, frnklin mint junk, etc, etc, etc….The greatest generation my arse. Go buy another “ITS ALL ABOUT ME” book and leave us alone.
It’s possible to choose a profession that lets you work from home…no commute, and the option to live as far from the city as you want. It’s not a pipe-dream, it just takes planning.
Yes, but that is a solution for individuals - not for an entire society.
oh there are lots of jobs where telecommuting is an option… only catch is that there are in China or India.
Welcome to the Global Economy
I work from home 50%+ of the time, but, let me tell you, it’s not something for everyone. There are many jobs that simply cannot be done this way; I happen to work in IT and that makes my telecommuting much, much easier. However, for the vast majority of people (80+%) I would think that this is simply not an option.
The professions that can most easily work from home are mostly “intellectually based” jobs that typically pay reasonably well (on up to very well). However, these are the people that LEAST need the ability to work from home; they can absolutely afford the cost of gas/car/etc. Unfortunately, those who are unable to work from home happen to be those that can least afford all the costs associated with long commutes.
Working from home is not a pipe dream; and it’s not all roses either. But as a solution to the commuting/exaburbs crisis, it’s not realistic.
Also, I probably have a huge carbon footprint even though I work from home. Those days that I am not at home I drive long distances, and fly all the time. So, once again, the cost of oil has a dramatic impact on these activities.
I do educational development, research, and writing from home. It can be a little boring but it’s a take along skill that’s good to have when your spouse is moved around a lot. It’s very nice to be your own boss.
“But now, with gas averaging $3.30 and rising, the McCausland dream is getting soaked at the pump to the tune of $300 a month, or $3,600 a year…”
America needs… Stimulus Distribution Plan ll …with a 6 month roll-over feature built in.
Hi. My unscientific observations are from reading craigslist, Wash Post RE section and Realtor.com since 2005 when I sold my house in Fairfax, VA and planned to downsize with a condo in DC proper. House prices in DC are seem to be down 10% since then. Condo prices in DC seem down 30% at least. Houses in Fairfax my old neighboorhood in Fairfax City (22030) seem to be down 25%. Neighboorhood was 1950s 3/1 bath houses on 1/4 acre lots. I sold for $425K. It was at the low end of the range. Have seen bank owned for as low as $300K. Notice in the DC condo market MUCH more inventory the last two weeks - as well as funny pricing. Just yesterday saw advertised two studios in same building in Cleveland Park - nice metro accessible older neighbor close to the zoo and Rock Creek Park. One priced at $180K the other at $224K. Prices still need to fall much more. For example one bedroom condos on the low range of pricing are approaching $250K. They need to be $200K to equal the cost of renting same place. Another note: DC Metro enconomy is no longer one company (Federal Gov) town. It accounts now to about only 20% of local economy. Lot of other business here. For example Exxon Mobile is headquarterd in Fairfax, Sprint Nextel in Reston VA, Marriot in Maryland suburbs. Though I still plan to buy in DC or other city, they are still vunerable to telecommuting. It, I think, is the biggest long term threat.
If anyone has this week’s Onion - have a look at the cartoon on the top right corner of page 11.
HBBers will love it!
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““My question is, when will these areas drop?”
The bubble spread from the core to the periphery and now the bust will progress from periphery to the core.
“These areas” will drop when the job losses mount and the recession turns into a severe recession, even a depression. The #1 factor would be rise in the UR (unemployment rate) in the area.
CA has been in recession since June-July of 2007, led by rising UR, and that is when the home prices in LA and San Jose cracked. The high-end zip codes in some areas would be the last to crack but crack they will.
Jas
A big difference is in the types of loans which were used to buy in the inner city areas and the burbs. Inner city = subprime and burbs = ALT-A. Subprime lonas had fast adjustment time-frames, where ALT-A have most often around 5 years of teaser rates and higher overage percentages before the full rate kicks in. As a result we have not seen that much in the ALT-A area, but the numbers are really starting to build up. Give the burbs until the end of the year and into next year and you will see big cracks in the stucco! - Oh, just so I don’t feel like reposting to this later, low wage jobs are taking a bigger hit right now than professional ones, but it all trickles up.
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You are right about the short-term, but in the long-term (2-3 years) the economic fundamentals, especially, UR will assert themselves. My guess is that the core and high-end will seriouslyy crack beginning end of 2008.
Jas
GH,
You might not see Alt-A follow subprime the way many are predicting.
When Subprime’s started resetting, the interest rates were alot higher. Recent Alt-A resets have resulted in *lower* rates because they were contracted at small spreads over the LIBOR.
I agree that the rise in payments may not be as shocking for those in Alt-A, however, I disagree that the foreclosures will not be as significant. Alt-A loans were (IMHO) written mostly to people who have a higher (notice I didn’t say HIGH) level of financial acuity. I predict that it will not be as much the payment adjustments that get these people to walk away, as it will be the fact that their home has lost a very large portion of its value.
In other words, I don’t see it as the inability to pay that will be the biggest effect, more that it will be the unwillingness to continue to throw good money after bad.
This is a bit circular. What will reduce the value of the home if there are no foreclosures? If the value of the home doesn’t decrease, what will cause the foreclosures?
To pick a concrete example, when prices started dropping over the last year or two, buyers paused for a while in the “good” neighborhoods in the San Francisco Bay Area. After a bit, people noticed that the bad news was only hitting the exurbs and they have returned to the business of bidding wars. I have friends actively in the market in half a dozen “good” towns and they are all being outbid by at least half a dozen people, some of whom have zero conditions on their offer - which indicates that they aren’t using a mortgage since banks require at least a home inspection as a condition of making the loan.
“What will reduce the value of the home if there are no foreclosures?”
The generous oversupply of housing, and the silly ratio of prices to rents, which has appreciation expectation built in.
I grant you, these factors may not apply everywhere.
What will reduce the value of the home if there are no foreclosures?
Sales involving 100% cash are disconnected from the credit situation and contribute nothing to the argument for or against property prices falling or rising.
Cash-buyers are, for the most part, out of the loop until the general economic downturn affects their resources.
Actually, they’re in the loop.
Even if you’re paying cash, you should compare what you pay in ITIM (interest, taxes, insurance, maintenence) with a THEORETICAL 0% down loan v/s rent.
If rent is cheaper, it still makes no sense to buy, cash or no cash. That, and the opportunity cost of the cash as well.
Sure.. A cash buyer might run some numbers and then decide if it’s a good buy or not.
Depending on what numbers they ran, that decision would then be a valid indicator of some particular part(s) of the RE market or of some other market.
But are there any market forces that can deter or prevent or somehow influence a cash sale? I can’t think of any.
Without knowing precisely what (if anything) influenced the sale I don’t think cash sales should be used as a market indicator. Cash does whatever it pleases and in that sense the cash-buyer is out of the loop.
Well, then we are arguing a matter of degrees, and unless you nail down what “out of the loop” means, we’re going nowhere.
If cash does whatever it pleases, then 50% cash also does whatever it pleases given that it lives in a 0% down world.
The latter can strut around like roosters as much as the former can.
For the purposes of this thread lets say the ‘loop’ is the series of various indicators and statistics on which RE market projections can be based.
“Name” wrote:
..people noticed that the bad news was only hitting the exurbs and they have returned to the business of bidding wars. [snip]
I have friends actively in the market in half a dozen “good” towns and they are all being outbid by at least half a dozen people, some of whom have zero conditions on their offer - which indicates that they aren’t using a mortgage since banks require at least a home inspection as a condition of making the loan.
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It appears to me that what we have here are cash buyers interjecting themselves into the market. Does this necessarily mean that RE prices in this area are more or less prone to fall or rise? Were local income levels, employment figures, credit availability or rent ratios taken into account?
Did these buyers make carefully calculated purchases? Or are they just a bunch of GFs with deep pockets? We don’t know.
If they are GFs, can we maintain that prices are well supported by some kinda GFCB (greater fool cash buyer)fundamental indicator? I don’t.
There’s just too many unknowns to take these sales seriously, imo.
“The bubble spread from the core to the periphery and now the bust will progress from periphery to the core.”
Exactly. Happens this way every time in So Cal. Right now the Inland Empire, Riverside, Corona and the outskirts are getting hammered. And it is starting to show up in the beach areas. HB prices are falling now. Wait 9-12 months and the core areas will have busted big time too.
No kidding, robmypro.
I spent a lovely couple of days this last week in the High Desert, and the amount of places For Sale or in foreclosure is staggering.
Ironically, it hasn’t stopped the builders from building….cruising through the west of Hesperia, there were some very new, very BIG houses so ‘recently’ constructed that the landscaping isn’t even done. Driving further into town, it seemed that every other house was for sale/rent/foreclosed.
Seems the height of folly to build new places when people are having a hard time unloading the old ones…
Twentynine Palms seemed to be the worst - on the long, straight Amboy Rd out of town, the corner of every dirt road coming off of it was full of RE signs, Auction and Foreclosure notices. For what looked, at very high-speed ‘inspection’ to be shacks - mostly boarded up with crumbling roofs and porches.
Made me wonder what proportion of them were Meth Labs…
Also, and this applies to the whole desert area - unbelievable amounts of illegal dumping. Get out of the car and walk around on the lay-bys and every single one seems to have faded, broken posessions laying around in the sun.
Went to see the beautiful California Poppy Reserve (near Lancaster) colour-show last weekend, and parked up to stretch our legs, whereupon the husband literally tripped over a stripped arcade game carcass!
Looking closely, it appeared that the entire contents of about 3 double-wides had been scattered all over the area - from diapers to telephones. Driving along later, we saw what looked like the crumpled shells of the double-wides off in the distance.
All this within a mile of the State Park entrance. Very sad.
I’m sorry for the environment, as this stuff will take decades to break down in the desert.
But I also wonder what happened to the families whose stuff is now strewn all over the place….
Righto to Jas … this will happen in SF and Marin County as well… there will always be some “bidding wars”, because some people have the means and just don’t care, but the days of bidding wars by the rank and file amongst us are gone… for a while anyhow… this will eliminate the notion that buying an already overpriced home is the ticket to paradise as the risk is all to the downside, esp in the current economic conditions..
This is what I’m thinking will happen in DC, which is why I will continue to wait.
“Seated beside her at their kitchen table, Brian shrugged his shoulders. ‘It’s America,’ he said. ‘You think you’re always going to work hard and get ahead. And it’s not always that way.’”
It’s not really America’s fault that you’re stupid.
If a family’s normal living expenses absorbs everything it earns, there is no cushion for bad weather.
It doesn’t take a high IQ to know you’ve got to live somewhat below your means no matter what your income is. It just requires a small dose of discipline.
It’s official…
America has turned into a country of WHINERS!!!
Waaaaa…. I work hard & get nothing….. Waaaaaa!!!
Pfffft.
“Generally it depends on the area, especially the case with DC which is so affected by government policy. Loudoun and Fairfax counties were the biggest boom this time due to military and security contracting. My guess is that MD will boom bigger than NoVA next time, due to health care being the next big government thing, and the decline of the military as we pull out of Iraq.”
Could somebody elaborate of that?
What is the situation with the College Park revitalization? I found half-a-dozen SFH within a mile of a Metro station for about $300k (mostly built in 1960s). Looks like a great price level in comparison to NoVA. What is the catch?
Interest on the national debt is now #3 on the fed budget behind SS/Medicare and DoD… hell, it’s more than the cost to run the DHS behemouth… say nothing of decreasing revenues from an economy heading (or already in) for trouble.. me thinks some of those gob’mt jobs are not as secure as they once were, so the DC prices have nowhere to go but down IMO..
I think these guys are sincere. Misguided but sincere. They are trying to provide a good childhood for their kids. And in their calculations, the husband’s time at home and the stress of a mega-commute was worth less than each kid having their own room and a massive backyard. In fact, at the time I’m guessing he even thought it was a good show of his character that he was willing to sacrifice to provide these amenities for his children. But, nonetheless, it’s a bad miscalculation. I bet if the kids could articulate it, they’d gladly share rooms for a refreshed dad who was available at a moment’s notice for a school play or something fun but unscheduled. They’d gladly trade in the views for a mom who lived in confidence of her financial situation. (That stuff rubs off, make no mistake.) And as they become teenagers and find out that the exurbs are completely stagnant, my guess is that they’d be pining for any chance to run to the city, just to get away from the strip malls. This bigger is better American dream is just that: a dream and not reality. Like I said, I don’t doubt this couple’s sincerity one bit. But they are making bad choices based on what they say they actually want.
Being a father myself, I concur Noodles.. I don’t find any fault in people making decisions like this, that are, in their minds, in the best interest of raising their kids right..
If they’re misguided, they’re stupid. There’s no disguising the fact that at the end of the day, they’re stupid.
It doesn’t take rocket science to actually work out that part of a job of being a successful parent is to have a financial safety net.
Any number of euphemistic phrases isn’t going to change the basic equation which should be quite clear to anyone on this blog.
Makes me wonder how many successful parents there are.
In The Austin TX crash of 1985-1990, we saw the suburbs where they were still building drop first (builders cut prices to move inventory). The deflation wave rolled in losing potency as it did.
The recovery started close-in in the best areas and rolled out slowly, losing potency as it did (except for some of the new high-end stuff in the hill and lake country to the west — which recovered better than Genericville (aka Round Rock, Cedar Park, Pflugerville).
The suburb areas (see above) where there were thousands of the same type of housing dropped about 40%-50% by 1990 and took till the 1998-99 high tech bubble to fully recover and surpass 1985 prices. The best in-town areas - Enfield-Pemberton-Tarrytown-Brykerwoods - recovered by 1996 after dropping about 25% - and went way pass 1985 prices by early 2000s.
Today, I believe gasoline and energy cost of heating/cooling will exasperate this pattern even more. While people fret over gasoline prices, natural gas looks to be even a worse deal in North America in the coming years. Basically, I’d consider the value of any house under “worst” case conditions next decade…gasoline rationing - 10 gallons per month or something - and $200 / gallon coupons on eBay if you need more. 5 year wait for $100K plug-in hybrids. 5X heating and cooling costs (solar and geothermal excepted). How will your living arrangement work? How much is your house worth under those conditions? I’d say some areas fall to $0 value, unless it can house farm workers to nearby farms, etc…
Hopefully, it won’t get that bad.
The far out burbs will. There is no hope for them. They should never have been built. They have negative value.
$300K, you say?
BWAHAHAHHAHAHHHHHHHHHHHHHHH!!!
I posted the other day I was considering buying a farm (70 acres, water, nice house, for 200k) 20 miles from the nearest town.
Very very tempting, but I passed because I worry about the price of gas.
This is in a town (Price, Utah) an hour from where I currently live and there are places closer in, so will wait for prices to drop further (that part of SE Utah is not an expensive area) and I know they will. I’ll find something closer to town. Just saw a house right out of town on an acre for 75k, new and quite nice.
I also just passed on a really cheap place to rent in the country for the same reason, too far out (this one in Colo.), and this would have been a wonderful pace to live, peach orchards in a beautiful canyon.
As the price of gas goes up, such places will become boondoggles. I’m a bit of an impractical dreamer, and if I’m worried about such things, you can bet I’m not the only one.
I live in a town dependent on tourism, and I’m not seeing much traffic, this is the prime time of year, too. And when I drove over to Colo. yest., I passed many a truck doing 65 on the freeway to save gas. The state troopers looked pretty bored, nobody speeding. I drove a lot slower than I usually do, too. Gas is expensive.
ATLANTA:
Last month 14,303 houses in GA were in foreclosure. That’s a monthly rate of 1 out of every 457 households. If these foreclosure numbers stay within the same range for the entire year, it would equate to an annualized foreclosure rate of 1 in 38.
Usually on Saturday mornings there is a show on local TV that showcases new home subdivisions. Today, instead this show was on foreclosed homes up for auction.
The BF was watching CNN today. Bless his heart, he is never going to be a financial genius, but even he was laughing hysterically at some woman who was advocating Reverse Mortgages as a way to avoid foreclosure.
Coincidental timing that this came out in a Washington Post story today…
http://htaindex.cnt.org/
http://www.washingtonpost.com/wp-dyn/content/article/2008/04/12/AR2008041200150.html