‘Tons Of Price Reductions’ In Northern Virginia
The Connection asks, ‘Will Spring Grow More Buyers?’ for northern Virginia. “Buyers have quickly realized this isn’t last year’s market. ‘Buyers have been beat up for the past several years,’ said David Howell, managing broker in McLean. Howell, who has tracked movements in the Northern Virginia real estate market since 1979, added that would-be buyers this spring won’t be in a big rush.”
“Richard Hutchison, VP of mortgage lending with James Monroe Bank said he’s seen realtors recently negotiate lower mortgage rates for buyers by asking sellers to buy down the rate.”
“‘If you go to the MLS, you see tons and tons of price reductions,’ said Ernie Miller, sales manager in Springfield. ‘Buyers are asking for sales prices less than list price. They’re asking for seller contingencies, and we’re seeing very few houses go when they’re first put on the market.’ When Miller, who has 33 years of real estate experience, listed a townhouse in Alexandria, it received three offers. ‘But none for full price and without some seller concessions,’ he said.”
And here is a March/April report from an area realtor. “The market has clearly softened. There are roughly five times as many homes on the market today as there were this time last year. The number of new contracts ratified in February 2006 was down 18.1% from the number of contracts ratified in February 2005.”
“28% of all homes going under contract in February 2006 had a price reduction before going under contract; it was only 7% last February.”
“As one would also expect with the increase in inventory, sellers are dealing with a much more competitive market. 34.9% of homes settling in February received contracts in the first 30 days on the market, compared to 79.9% last February. That is the smallest percentage of homes selling in the first 30 days in any month since February 1999.”
Thanks to the reader who sent in the realtors site. Be sure and get your pictures in, we are updating starting tomorrow.
From the foreclosure blog:
‘An increase in foreclosures coupled with the normal seasonal increase in home listings has pushed the number of homes on the (Denver) market close to a record high. There were 27,309 homes on the market in March, up 17.6 percent from the same time last year, according to statistics released today.’
‘Independent real estate analyst Gary Bauer said inventory likely is up because foreclosures are up. ‘Banks go through cycles of operations. The last few years, they maintained their own inventories,’ Bauer said. ‘But as things are turning around, they’re using the realtors now to help them market their own property.’
‘That’s been the case for broker Ed Jalowski in Denver. In the last six weeks, Ameriquest has assigned him seven listings. He estimates that of the 50 listings he has, 60 percent are either short sales or bank-owned.’
I’m not surprised by any of this - I can see it out the car window when I slum around the ‘burbs on the weekends. Ben, you gotta check out a thread at Businessweek.com on the DC market - http://www.businessweek.com/the_thread/hotproperty/archives/2005/07/washington_dc_b.html
Its been going on since last July - the poster trolls in there are starting to get really uptight - you can see it in their posts. I’ve been in there trying to be thoughtful and reasonable, and I’m getting FLAMED by the trolls - the Realtwhores and Investwhores are really starting to panic in our neck of the woods. We’re not there yet, but I sense it is starting. Man, I hope you archive all this stuff for posterity. Not that it’ll do any good - the financial memory is very short….
I was a bit young during the S&L crisis and I still don’t quite understand what happened. So someone please briefly answer the following question.
Interest rates go up, people can’t pay mortagage, bank forecloses, bank then sells said foreclosed property for less than what was loaned out so bank looses money, government steps in and bails bank out. So what’s the down side for the banks? Why try to be responsible and loan money out to those who have a good chance of paying you back when the government will be there when you fall? I still don’t quite understand it.
Alas, though the Wikipedia article is good, it leaves out that: (a) the government did not bail out the S&Ls — it closed the S&Ls and bailed out depositors up to the $100k insurance limit, (b) loans could be highly “profitable” for an S&L short-term even if they were certain never to be repaid, and so could allow the owners of the S&L to pay themselves enough in dividends to get rich even though they were dooming the S&L as a company to eventual failure, and (c) if the owners were real crooks they’d have the S&L loan money to companies they controlled, with no intention of paying it back. To understand this you must realize that you could buy an S&L with $100 million in lending power for, say, $6 million, loan money from it to whatever businesses you pleased (including your own, and even even phony ones), get back the $6 million purchase cost by creating phony profits (loan the borrowers enough to pay ultrahigh interest in the first year), dump the mess in the taxpayers lap and walk away rich.
Thanks! That does clear it up a bit and still soldifies my thought that someone is getting rich from banks going under. Too bad I don’t have 6 million to buy a bank.
By golly, I think he’s got it! If you are going to steal, steal alot. To get away with it you need lots of money for bribes, er, I mean campaign contributions, and lawyers. Besides, even if you get caught you can spend a couple years at a country club resort “prison” and when you get out get the millions in cash you have stashed in the attic and do it all over again. Big crooks profit big, small-timers do life without parole. Think big, always. If you have to go, go in style. That’s the thinking and the motto.
One correction, and an amplification. Although FDIC only promised to cover deposits upto the insured limit, in most cases they actually covered all deposits. As far as the ’causes’ of the S&L crisis, the main cause was the massive increase in interest rates in the early 1980’s that rendered most of them insolvent. They should have been immediately shut down, but instead were allowed to continue operating via a host of accounting gimmicks blessed by their regulator. The results was a) an incentive to roll the dice on high risk, high potential reward projects in the hopes of scoring big and getting out of the hole and b) the availability of S&Ls for purchase by thieves at very low prices. The shopping centers in the middle of the desert and crooked loans were mostly the symptom of the underlying problem - assets paying 6% while liabilities cost 12%, although the popular press seized on the obvious manifestations and called them the cause.
The S&L failures were a combination of three events one of which was a primary cause and two of which were more minor, but still important.
Tax law changes. S&Ls made lots of commercial loans to construction projects that were built for tax benefits. (in that era you could build a building that would be generate a nice return in tax savings for your investors). Congress got wind of this and retroactivly closed this loop hole. This was a bigger impact for commercial banks, but most lending institutions were exposed in some way.
The second was the key but it is complex. Banks make money off the slope of the yield curve. They borrow at short term rates (from deposits and money markets) and lend at long term rates. In almost all circumstances this generates a nice spread. However, for about 5 years in the late 70s and early 80s it didn’t. The banks had generally lent long term money (at say 6%) that was funded by short term loans (deposits) that were now paying 10% plus. When the normal interest margin is +1% and it goes to -4% you are screwed!!! To add insult to injury their balance sheets were impacted by the opposite problem, their assets (long term loans) declined in value (why buy a loan when you can make a new one at double the yield) while their deposits retained their value. This essentially left almost all S&L’s insolevet.
Finally, there was a recession combined with an oil price crash. Many of these ailing S&Ls were located in oil sensitive areas and just when their balance sheets were weakened the got the crash in oil loans. Or a good ole boy bought them for pennies on the dollar to extract the last bit of equity before they failed. In any case, a large number of bad loans were made (if the bank is failing already who cares about credit risk). When these finally went bad, S&L’s failed in large number. This got the blame, because bond duration flew right over Congress and the public’s head but cronyism hit home. However, make no mistake it was the exposure to rates that did them in (who ever finally did the executing). As the other respondant mentioned, the government simply made good on the insurance backing deposits of the S&Ls the corporate parents were either bought for effectivly nothing by a few national banks (and the odd S&L who survived).
The depositors of the banks are the only ones who are insured. Although most banks today do not carry home mortgages on their books (the note, rate, and risk were sold to other investors). Banks participation in the mortgage market is mostly as the distributor of capital.
“However, make no mistake it was the exposure to rates that did them in (who ever finally did the executing).”
Another mistake not to make: It was Volcker who exposed them to those high s-t rates.
This is why ARM loans are popular in the secondary market . The interest rate yield changes and keeps pace with the market
“‘Buyers have been beat up for the past several years,’ said David Howell, managing broker in McLean.”
Now is the chance to get really beat up — by several years of price reductions after you buy near the all-time high price level…
Be sure and check out the average and median price graph on the McLean realtors site. Both peaked May/June of 05.
Both the average and the median also roughly doubled between Jan 01 and May 05. Just mind-boggling.
Unfortunately, they didn’t include an inventory chart this month, but there is a very telling one in the Jan/Feb 06 report.
The extreme gains were so obviously 2004 and 2005. I can see that since this area had little price growth between the early 90’s and late 90’s that we had some catching up to do (so to speak). In 2003 there was a definite lull. A calm before the storm. Builders were offering very nice incentives that Spring. That would have been the perfect time for the Fed to raise rates.
* As one would also expect with the increase in inventory, sellers are dealing with a much more competitive market.
* 34.9% of homes settling in February received contracts in the first 30 days on the market, compared to 79.9% last February.
* That is the smallest percentage of homes selling in the first 30 days in any month since February 1999.
Next shoe to drop: Price retrenchment to 1999 levels…
Buyers need to realize that not only is housing extremely overvalued but their dollar buys less. Less gas, heating, insurance, health coverage, food, you name it and it has gone up. Plus interest rates are higher. Anyone buying homes now should do so only if they need a home or plan on staying in the home a long long time. The herd is still intoxicated with double digit growth and many are headed to the slaughter house because they’ve been an ‘expert’ the past few years and never witnessed a down cycle.
Most people can’t even afford health insurance. I have been without for 5 years because I refuse to get screwed over in this arena. If rates were reasonable I would buy. I am happy with someone making an honest living but when people are living like rock stars on me I get a little pissed off.
I might get a motorcycle or scooter if gas gets up to $4/ gal. Maybe harley davidson would be a good place to stash some cash.
H-D is mostly a lifestyle product at this point, since the typical one rolls out the door for around $20K, including accessories. They don’t have much interest in producing cheap and fuel-efficient transport. Their Buell subsidiary does make smaller and cheaper bikes, but doesn’t sell a lot of them. The Blast gets 69/72, but only has 34 HP, which would make it slower than a lot of cars.
It’s kind of like a two wheeled equivalent of a Hummer. Big, loud, thirsty, relatively low tech. Oh, and loud. People buy it for the image, not really because of anything it can do.
just don’t go riding without a helmet:-)
Most people can’t even afford health insurance. I have been without for 5 years because I refuse to get screwed over in this arena.
So, I suppose if you get hurt or sick and run up huge medical bills, you’re OK with bankrupting your family or forcing your parents to foot the bill? Maybe they won’t be too happy about “being screwed over in this arena” due to your irresponsibility.
Arizonadude, Our families medical insurance was cut from my husbands employer 5 years ago. He is still covered but myself and the two kids are not. I have done extensive research and if HealthNet is offered in Arizona you should take it. I have been with them 2 years and no problems. Full coverage for all 3 is 183.00 a month with a 3000.00 deductible but it also covers prescriptions up front and negotiates fees. Try it. Healthnet.com
Disclosure, I do not work for Healthnet.
Even better, you can pick and choose from many personal insurances via:
http://www.ehealthinsurance.com/
From there, we picked one with low monthly premiums (high deductibles) and ended up with Unicare PPO ($2k deductible) and got coverage for 4 of us at less than US$300 per month (we have some pre-existing conditions which is something like $100 premium per month).
Disclosure: I don’t have any vested interest in ehealthinsurance other than being a satisfied customer.
cactuscody, you’re right on all counts. The problem is that many just stick their head in the sand and make believe that a dollar is worth half what it was in 2001. [don't pay attention to that man behind the curtain]
Almost everywhere there is a shortage of buyers . I think a high percentage of buyers were priced out last year. The guy who bought my house last year paid cash ,but someone paid cash for his house to .Along with the 40% investment/vacation home buyers I think there was alot of buying going on by skin of the teeth first time buyers getting in before the interest rates went up last year . IMO this year the demand will be 60 to 70 % less than last year yet there will be more inventory .The tighter underwriting will push out more demand.I think its going to be dead in most markets in spite of the sales incentive to get in before interest rates go up more . There won’t be a mad scramble to reduce prices until late August or early September 2006 by sellers . This is what I think is going to happen .Does anyone else have a different story ?
My biggest fear is the Banks….They have made sooooooooooo much money the last few years that they will not hesitate to take substantial losses on REO property dragging the whole market with it….Appraisals then become the Grim Reaper…
i would not want to be a appraiser right now . Some appraisers do not include REO’s in their comps, some do . I just think the bubble markets are going to be dead dead dead . The lenders need to regroup anyway .
However your right , the foreclosure comps ( if there is enough of them ), will bring the appraisals down down down .
Just a few more days, and March’s NVAR numbers are out . . . can’t wait . . .
Fairfax County inventory heading over 6,000 tomorrow. (Last April, there were 1,000 properties on the market). Every weekend this year, there have been an extra 200 homes added. It just keeps going up.
In my zip (22181) condo/TH out of total listings has gone from 34 of 75 on 2/20 to 49 of 99 as of today. That translates to 44% and 34% increases.
Tom;…How many residents in that Zip ??
From census.gov
“The Census 2000 population for Zip Code Tabulation Area 22181 is 14,527″
Looks like about 5500 housing units as of 2000.
Probably a sign that I need to get a life, but when I know new numbers are coming out soon, NVAR.com is the second site I hit each morning, right after my email.
Ben -
Is there a link to the CNBC story on the DC condos everyone on here as been talking about all day?
Thanks
ZipRealty lists 2559 properties for sale in DC, as of April 2. Of the current listings, 39 show they have price reductions
http://dcbubble.blogspot.com/2006/04/old-threads-where-in-world-is-capitol.html
I get 2586 listings tonight, and 630 of those have been reduced.
That’s 25%, which is what I’ve also been seeing in the Northern VA counties.
If one has any criteria checked at ZipRealty (other than checking “only show properties with reduced prices”), I’ve noticed the price reductions feature doesn’t work correctly.
“would-be buyers this spring won’t be in a big rush”
It sure as heck looks like they wont be in any rush. And when the rest of the world realizes spring wont be sprung this year, the market is going to get even worse.
-X
BubbleTrack.blogspot.com
Think “Silent Spring” for real estate sales…
I predict that squirrels will have to feed themselves for a long, long time.
I predict the foreclosed FBs and hungry realtors will be feeding on those squirrels.
They won’t have to worry about feeding themselves when the FB’s eat them.
Price reductions can continue-however, so much money has been pumped into the economy due to 9/11 and the wars currently going on that the chances of properties going down 50%(what they were 5 years ago in Calif., Phoenix, Fl, Etc) is next to impossible.
I am currently look for a home and a 1.5 million dollar house that was purchased only 6 years ago for $650,000 (currently in escrow) is not un-common (percentage wise increase) for this area.
It is a ghost type of inflation that will not go away any time soon. That is why the M3 is no longer available and gold is up-investors do not trust this Fed.
Of course-if interest rise to over 10%-Than look out down below-this economy who go to hell.
But despite all the extra dollars floating around, median incomes haven’t budged. All the extra money in the system is meaningless to the average Joe. Low interest rates may have “helped” him buy more house, but once those are gone all the extra money in the system won’t matter at all. People need income to buy a house.
The rich may be better off now, but I don’t think the rich can support the housing market themselves. Beyond owning perhaps 5-10 houses to use for themselves, what interest do the very rich have in housing if its not performing well as an investment? They’ll put their money wherever a good return is.
Absent low interest rates, the ability of the median earner to support high housing prices is no different than in 2000 before this bubble got started. 50% drop could be easy.
Not only easy — expected. Why is it so hard to grasp the idea that anything gained can just as easily be lost? In fact, since booms are an abberation to the upside, the reversion to mean practically guarantees prices lower than 1996 until balance is ultimately re-established.
p.s.: BTW, that’s only if the rest of the economic world was essentially stable. Since that’s not the case…
I agree, just look at the stock markets (especially in Europe).
This inflation is here to stay for many years, you just don’t see it very well because it is manipulated out of the statistics.
Just read today that realtors in the Netherlands are seeing a fat chance that the housing market will go bonkers again this year (that is: to the upside), if the economy keeps ‘improving’.
That is after a few years of 5-10% growth in the averages and nearly 10 years of more than 15% yoy growth before that.
The only thing that is improving in Europe is GDP growth, without a doubt thanks to inflation (which officially is now near 1% but in reality close to 10%). Wages will probably decline but thanks to the always-easy ECB, that will not prevent house prices from rising further.
http://tinyurl.com/nmwgf
WASHINGTON - Federal regulators are paying close attention to increasingly popular high-risk mortgages and the credit risks they pose for banks, the government’s top thrift regulator said Thursday.
The remarks by John Reich, director of the Office of Thrift Supervision, were in line with expressions of concern by several bank regulators in recent months over the popularity of so-called interest-only or pay-option adjustable-rate mortgages.
Consumers increasingly have been using them to buy homes they otherwise could not afford. And banks and thrifts have been turning to them to maintain their loan volume and profits in a competitive market, sometimes lowering standards for extending credit, Reich said.
“We are increasing our vigilance. … We are asking our examiners to dig deeper into loan portfolios to understand the risks individual institutions are assuming,” he said in a speech to the New York Bankers Association.
“One of the risks we are closely monitoring involves the proliferation of alternative or nontraditional mortgage lending products,” Reich said.
Copies of his speech were distributed in Washington by the thrift agency, which is part of the Treasury Department.
The federal agencies that regulate banks have been evaluating the risks to lenders and examining banks’ lending policies.
The regulators do not seek to stanch innovation by banks, but to encourage sound banking principles, Reich said.
__
Now that word is out about the virtual abandonment of traditional loan underwriting standards, those regulators will have to do their jobs and crack down on high-risk lending, or else face scrutiny themselves.
I think this is the warning that these guys are going to be the first perps targeted when the fecal matter is being thrown about by the ventilator.
Jobs report in the morning - This could give us a 5% 10year if the number is high. Any one care to guess?
Low UE number => Phillips curve / NAIRU models point towards accelerating inflation => Fed cannot stop tightening if they want to keep the l-t bond risk premium (i.e., yields) from going right through the ceiling
The headline UE number that the media reports is very misleading. The more accurate number is the U5 or U6 line on the BLS report.
Inflation is not being caused by wage pressure, it is being caused by commodity prices and other factors.
And credit/debt inflation. Works just as well as wage inflation…until someone has to pay it back.
I found this article disturbing because it shows that buyers can’t wait which means they think that the market will go back up and they got a bargain. The greater fools have not left the market place, they’re just waiting to be asked in through more smoke and mirrors.
IMO I think that today officially kicked off the deflatuence of the bubble. It was clear from the Feds that: “Moskow said a probable slowdown in U.S. housing markets ’should be an important factor in bringing growth back to potential’ as the Fed has forecast for 2006 and 2007. But if housing remained solid ‘this would heighten the risk of above-trend GDP growth’ and could be inflationary, he said.” they are going to put the breaks on the housing market. Couple that with this past weeks exposure of the condo markets in DC,SD,OC,FL,LV and the high power round table on Kudlow and you now know the first volley has been fired at the condo market. The second stage at a later date will be the vacation home/second home market. The third stage will be the SFH. Somewhere sandwiched inbetween will be the banks/lending institutions.
“The second stage at a later date will be the vacation home/second home market.”
I think that one was yesterday (40% of 2005 used home purchased as seconds-or-more…)
http://www.realtor.org/Research.nsf/files/REL0602EHS.PDF/FILE/REL0602EHS.PDF
Look at this chart on realtor.org. Particularly at the first column of the second table. It looks like we will see national Year-Over-Year median price declines in existing homes for the first time in April or May of this year. Year-over-year decline in average home price nationally (see 6th column of second table) seems to be on target to actually happen this month.
p.s. Here is the above link as a tinyURL in case the top link didn’t work:
http://tinyurl.com/h3zr3
Wow, you are right. I hadn’t look at that table in a few months. What happens when they can no longer say that prices have “never declined on a national basis year over year”? I can’t wait for the SPIN.
I hadn’t realized that we were actually getting so close to the big event! You would never know by listening to media that prices have been flat since LAST APRIL!!!
Price reductions can continue-however, so much money has been pumped into the economy due to 9/11 and the wars currently going on that the chances of properties going down 50%(what they were 5 years ago in Calif., Phoenix, Fl, Etc) is next to impossible.
One thing that I have learned in life is to never say never. While I agree that 50% reduction isn’t likely, I wouldn’t bet that it’s impossibe. We are in uncharted waters right now.
IMHO
Don’t think of it as a 50% reduction–think of it as returning to pre-housing bubble comps. When was that? 2000?
Price reductions can continue-however, so much money has been pumped into the economy due to 9/11 and the wars currently going on that the chances of properties going down 50%(what they were 5 years ago in Calif., Phoenix, Fl, Etc) is next to impossible.
One thing that I have learned in life is to never say never. While I agree that 50% reduction isn’t likely, I wouldn’t bet that it’s impossibe. We are in uncharted waters right now. Who knows how this will play out?
IMHO
Hey bloggers, don’t overlook Hampton Roads. It’s not a glamorous or well know area, but the rollercoaster ride here has been so dramatic without the long term fundamentals to soften the crash that this place could really be a worst case scenario.
Absolutely. Va. Beach housing has reached ridiculous levels. But a bubble can’t happen here because of the high demand and limited space for building. [rolls eyes]
I’d really like to see more comments and articles about this area but I guess we pale in comparison to $1 million crackhouses in Calif.
I posted a week or so ago about how Hampton Roads has the biggest % appreciation of anywhere outside of CA (and NOLA, a special case) for the last 6 months.
I did my weekly check this morning. Va Beach condo inventory 250% of what it was last summer (468 vs, 185); sfh inventory up over 15% from December (1382 vs. 1190) when I started with those statistics.
OTOH, I believe the top may have just passed. You can get condos with a garage in Va. Beach for under $225k; for a few months they didn’t even start till north of $250k. And I am seeing some dramatic reductions in what you can buy per square foot, primarily in Williamsburg.
But, there are still 150 listings over $1m in Va. Beach. I do not see how this area can possibly sustain that number of listings.
Hey bakabei-whatever-your-name-is,
Where do you find those numbers? Also, what do you think the prognosis is for SFH prices in HR, esp. VB, for the next couple years? Thanks for the input.
realtor.com and roseandwomble.com
Full disclosure: I’m a consumer just like you. My working thesis is that by the end of 2006, the 2005 price increases will be gone (as the speculators bail out). Then it gets more interesting, depending on whether or not there is a HELOCalypse. Hampton Roads is particularly prone to this, given its working class orientation. My bet is that the 2004 price increases will go too, but whether it’s quickly or in a long drawn out process, right now I haven’t a clue.
But when the Housing Tracker says HR homes are priced equal to Boston, DC, and Miami (i.e., the highest on the east coast), that suggests to me there is a LOT of extra local risk.
A little OT, but interesting to note. Remember months ago we were talking about people burning down their houses?
Thursday, April 6, 2006
Empty residence burns in Laguna
By John McDonald
A fire early Wednesday heavily damaged an unoccupied Laguna Beach house that was being renovated, authorities reported.
A floor furnace that painters had covered with a plastic tarp turned on about 5 a.m. when its thermostat activated, Fire Department Division Chief Jeff LaTendresse said.
Flames were shooting through the roof when firefighters arrived. They needed a half-hour to control the flames, which gutted the 59-year-old, 1,000-square-foot Thalia Street house.
The financial loss had not been estimated, but LaTendresse said most of the home’s contents had been removed during the renovation.
Interesting. We will probably start seeing more of these types of fires.
A few months back I plotted the median home price data and number of arson cases across Northern NJ over the last bubble. I was ’sure’ that I’d have found some correlation, but that didn’t seem to be the case.
That doesn’t really fit with the stories I remember hearing over that period..
grim
Wow: an arson you can pin the blame on technology. No one’s at fault, except the insurance company, of course. How convenient.
[taking my tongue out of my cheek.]
I wonder how ins cos’ will account for this? Raise the rates on everyone (i.e., “tax” all those who don’t arson their homes) or investigate the fires thoroughly and punish the home owners? I suppose it depends on how bad things get…
the post Superbowl kick-off is done. barbara was wrong.
what’s the story with condoflip?
I’d love to see more stuff about Richmond, VA
The numbers have been released for Northern Virginia for March.
Inventory is through the roof!!!!!!!!!!
http://www.nvar.com/market/marketstats/march06/index.html
From that same site the distinguished Lawrence Yun Ph. D said the price of decline is close to zero:
http://nvar.com/newsdetail.lasso?articleno=nvarn100608
I would write a thesis on the uselesness of a Ph. D., but I actually have better things to do with my time.