For fellow housing bears

[Anonymous]

Anonymous wrote:If home values stagnate or fall in the near- to medium-term, then current owners in desirable areas are going to stay in those houses forever, because they won't want to sell at a loss. This was something of a problem during the last downturn, when it took something like a decade to get back to 2004 or 2005 prices (and some places still haven't). So even if prices come down, it will only help buyers so much.

They can keep their boxes, but nevertheless sustainable pricing will be a much greater benefit overall.

[Anonymous]

Anonymous wrote:If home values stagnate or fall in the near- to medium-term, then current owners in desirable areas are going to stay in those houses forever, because they won't want to sell at a loss. This was something of a problem during the last downturn, when it took something like a decade to get back to 2004 or 2005 prices (and some places still haven't). So even if prices come down, it will only help buyers so much.

Some will stay, others will send the keys to the bank and walk away. This happened bigly in the last two downturns.

[Anonymous]

I'm not anywhere close to an economist or a realtor, but demographically urban areas will become denser and denser and sprawl larger and larger. Rural areas are where the declines happen. Populations are only going up, and even if they didn't, the urban areas would still grow (see China). The problem is zoning and housing density and types of builds. I wish they would build affordable new houses for young families, but apparently that's not what the market demands. (or at least, there's enough people at the higher end of the market that developers don't have to care about those demands). I am 30 and have a government job I like so I chose to buy a crummy house, but hey, at least its inside the beltway. I don't see how that could lose much value. If I could live anywhere, I'd move to a smaller city that seems like its willing to govern. Chattanooga, Baltimore, Richmond, etc.

[Anonymous]

Anonymous wrote:If home values stagnate or fall in the near- to medium-term, then current owners in desirable areas are going to stay in those houses forever, because they won't want to sell at a loss. This was something of a problem during the last downturn, when it took something like a decade to get back to 2004 or 2005 prices (and some places still haven't). So even if prices come down, it will only help buyers so much.

Somewhat, yes. For those who are financially secure, the price of a house is irrelevant mostly. During the last downturn, the cheaper areas had very high inventory--especially of short sales and foreclosures. The more expensive areas had very low inventories of homes at all.

[Anonymous]

Anonymous wrote:I think people are in denial. What has been happening here is just simply not sustainable.

Everyone lambasted the millennial poster who started the thread asking how they were ever going to be able to get a house, but I do agree that it is a problem if the generation coming up simply cannot afford to get into the market.

And the jobs issue isn't just about govt. budget cuts. Some very smart economists have been talking about AI and concerns that there will be far fewer jobs going forward. That's another topic for discussion, and maybe it won't come to fruition. But it is something to look at.

The Boomers had high interest rates, but they also had lower prices. Most Boomers also saw HUGE increases in equity and were able to refinance to lower rates and take cash out. Gen X had low interest rates, but they had high prices.

The millennials are facing exorbitantly high prices and eventually steadily increasing interest rates AND a tighter job market.

The attitude on that other thread was, "Well, we paid our dues; they'll have to struggle and pay theirs!" But I don't think people realize how that affects all of us.

When the middle class was really strong, housing was not seen as something you got rich off of. It was seen as something that you invest in for practical reasons -- to have a place to live that is paid off when you near retirement. The concept of the 30-year loan was that you live in the house.

This whole notion of starter houses and flipping and building equity only works if prices are going up, up, up, and up. In a normal market, the value of your house doesn't increase that much in the short term. Buying a house and then selling it in 5 years, for example, wouldn't give you enough to pay a down payment on another house. But meanwhile, salaries aren't high enough and rents are too high that there seems to me little way people can realistically save for a down payment.

I don't think what has happened to real estate is sustainable.

But who knows. We'll see.

+1

Also the concept of paying ones dues is irrelevant when a "crummy house in the exurbs" meant a split level in Vienna. Whereas today, a "crummy house in the exurbs" means a tear down in Chantilly. They say millennials whine about needing to "have it all," but I'd be very surprised if the old folks would be willing to make the commutes that first time homebuyers have to make today. Totally different playing field.

[Anonymous]

Has anyone considered if supply/demand growing population is the main cause (which I doubt because there's millions of vacant housing units), the government could limit that significantly. But then the republicans would lose money and democrats would lose voters. Luckily no politician wants to figure out a solution!

When the upper middle class gets to the point where they can no longer afford a decent lifestyle, then things will start to change.

http://www.businessinsider.com/san-francisco-housing-affordability-doctors-2017-4

It's starting to happen!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Without trying to read the tea leaves on proposed budget cuts, my take on the DC area is that housing costs are way beyond historical norms, relative to HHI. This has been made possible by abnormally low interest rates. When rates rise (and they will) to historical norms (the average thirty year rate is 8.5% or higher) housing will be hit and probably hard in this area.

Households can and have borrowed four and five years' income at three percent interest for housing. That will be impossible at 8.5% or higher. Ergo, prices will come down. The math determines it, not some agent's opinion.

DING, DING, DING! Virtually everyone I know sitting in a 1.8 million house had one or both of the following:

1) "Help from family" - which is to say, money that was likely not earned in the region
2) The enjoyment of some ridiculous equity explosion, that they kept rolling forward to properties - which is to say, they could never pay to house themselves and live a good life in the region, while saving for a $700,000 down payment. They "saved" for their down payment by living in a house that just magically increased in value.

DC salaries, when you look at other ultra expensive cities are very low. We don't have loads of hedge fund folks or techies who are getting multmillion dollar bonuses, and we consider "rich" people to be big law attorneys. Further, government salaries are capped very low at $200k.

Also, Millennials have absolutely no money. Yeah, sure, a few of them do. I am a Millennial and it is very hard to break into the housing market, and no Millennial is going to enjoy the easy equity Gen X and Boomers took for granted. Millennials also aren't willing to buy properties they don't like. Millennials spend all their money on chai lattes and Chop't salads, and they want the best of everything with minimal inconvenience. In 10 years, do you think they're going to line up to buy your crappy new build which will by then be dated and probably falling apart?

I love that you started this thread, OP. I am a home owner (hot area, close in burb, straight 10s on the schools), and I'll still be delighted when this ridiculous market right-sizes.

Umm excuse me but gen X got screwed by the housing crash, we didn't get "easy equity".

Exactly what I was going to say - Gen X always gets screwed - always.

[Anonymous]

Anonymous wrote:Federal budget cuts will result in a significant loss of jobs in the area. The national economy will continue to improve, and interest rates will rise nationally. These two forces will pull down demand and increase the cost of buying, respectively. Housing prices will at minimum not go up as much as some may think and could actually go down locally.

Back in the 90's same thing happen. Cut ton of federal jobs. The amount of work didn't change but fewer people. What happened...they hired contractors who tend to make more than federal works. Thus home prices went up and back then the interest rates were nearly double what they are now. The work has to be done one way or another. Let SS checks not get out, let the military not get paid, let the doctors working at the VA not get paid. Chaos will occur and then a sudden rush to hire.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Federal budget cuts will result in a significant loss of jobs in the area. The national economy will continue to improve, and interest rates will rise nationally. These two forces will pull down demand and increase the cost of buying, respectively. Housing prices will at minimum not go up as much as some may think and could actually go down locally.

Back in the 90's same thing happen. Cut ton of federal jobs. The amount of work didn't change but fewer people. What happened...they hired contractors who tend to make more than federal works. Thus home prices went up and back then the interest rates were nearly double what they are now. The work has to be done one way or another. Let SS checks not get out, let the military not get paid, let the doctors working at the VA not get paid. Chaos will occur and then a sudden rush to hire.

But that same starter house even with 10% interest rate was sold for $150,000. Today it's selling for $600,000 at 4% interest. Salaries have not increased proportionately. So how to us middle class first time homebuyers even enter the market?

[Anonymous]

There are two factors that will drive DC real estate over the coming decade:
1. As price growth in gentrifying areas slows, many fewer people will buy there. This will evaporate the main reason for buying into mediocre neighborhoods with poor schools.
2. Beltway suburbs will see accelerated growth from increased telecomuting and cheaper transportation (driverless, electric, etc.)

The trend towards living in the city will be somewhat reversed (or slowed) as the investment upside decreases while technology improvements makes living in desirable suburbs even cheaper.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Without trying to read the tea leaves on proposed budget cuts, my take on the DC area is that housing costs are way beyond historical norms, relative to HHI. This has been made possible by abnormally low interest rates. When rates rise (and they will) to historical norms (the average thirty year rate is 8.5% or higher) housing will be hit and probably hard in this area.

Households can and have borrowed four and five years' income at three percent interest for housing. That will be impossible at 8.5% or higher. Ergo, prices will come down. The math determines it, not some agent's opinion.

DING, DING, DING! Virtually everyone I know sitting in a 1.8 million house had one or both of the following:

1) "Help from family" - which is to say, money that was likely not earned in the region
2) The enjoyment of some ridiculous equity explosion, that they kept rolling forward to properties - which is to say, they could never pay to house themselves and live a good life in the region, while saving for a $700,000 down payment. They "saved" for their down payment by living in a house that just magically increased in value.

DC salaries, when you look at other ultra expensive cities are very low. We don't have loads of hedge fund folks or techies who are getting multmillion dollar bonuses, and we consider "rich" people to be big law attorneys. Further, government salaries are capped very low at $200k.

Also, Millennials have absolutely no money. Yeah, sure, a few of them do. I am a Millennial and it is very hard to break into the housing market, and no Millennial is going to enjoy the easy equity Gen X and Boomers took for granted. Millennials also aren't willing to buy properties they don't like. Millennials spend all their money on chai lattes and Chop't salads, and they want the best of everything with minimal inconvenience. In 10 years, do you think they're going to line up to buy your crappy new build which will by then be dated and probably falling apart?

I love that you started this thread, OP. I am a home owner (hot area, close in burb, straight 10s on the schools), and I'll still be delighted when this ridiculous market right-sizes.

You may have to wait a minute on the market right-sizing if it ever does.

I own 3 homes in DC 2 in NW and one in NE. I have owned 8 homes in my life time and 6 have been in DC. I have been in the DC market since 95'....here are my thoughts on DC proper market, not surrounding area. I think there are a lot of people in DC sitting on multi million dollar homes. Some have brought straight out and others just brought at the right time and equity in home exploded. There is talk of slow down in federal jobs, but most federal workers, not all, live outside of DC. Mostly because of kids and the schools. So who is in DC proper? The very wealthy, but not the kind of wealth you see in NY or SF or the techies out west. We are seeing Lawyers and lobbyist and some other industries in the city occupying homes for sure. You have a certain level of the poor financially, but expensive home who would be hard pressed to find another place to live in the area should they sell the house with tons of equity. A lot of these folks are elderly, and it will be up to their families to manage the asset after their death. More often than not you see these home sold to be flipped and resold at price well beyond what grandma/grandpa brought it for. Lot of these homes need extensive repairs because the money wasn't there to invest in the house. Homes like this through out the city attract a variety of folks with pretty significant incomes. Who would have thought the day would come when renovated homes in Brookland(NE) would routinely sell for a million or more. See Monroe street in the past year for sales.

Where do I think this is all going with rising interest rates? I think home prices will continue to rise but at a much slower rate. It won't flatline or decline unless a particular neighborhood becomes undesirable and don't see that happening as I have watched the "Line" of where to buy in DC shift further east every year. When I first arrived it was told to me not to buy east of Rock Creek Park. Now you hear people speak of Woodridge(has had a million dollar home sale), Brookland and a lot of the neighborhoods that boarder Eastern Ave. There have even been significant sales of home in SE because it is becoming one of the only places in the city that even has close to reasonable prices. Younger folks are going to have to get smart about buying in the city. Maybe going in on a house with several friends that they are already paying high rents for prime neighborhoods. Consider Anacostia, Bloomingdale was no better than any neighborhood in Anacostia back in the 90's and look at it now. You can't get anything decent for under 700k. DC is getting a lot like Manhattan as far as housing and we don't have the level of rent control that NY City has so makes for an even more difficult challenge. Along with the fact that you can only go so high in the sky in DC and land is very scares. People are going to have to seriously start looking at Prince Georges County cause there is really no where else to go. Get past the stigma and get a short commute into the city and a ton of land under your house. Go east.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Federal budget cuts will result in a significant loss of jobs in the area. The national economy will continue to improve, and interest rates will rise nationally. These two forces will pull down demand and increase the cost of buying, respectively. Housing prices will at minimum not go up as much as some may think and could actually go down locally.

Back in the 90's same thing happen. Cut ton of federal jobs. The amount of work didn't change but fewer people. What happened...they hired contractors who tend to make more than federal works. Thus home prices went up and back then the interest rates were nearly double what they are now. The work has to be done one way or another. Let SS checks not get out, let the military not get paid, let the doctors working at the VA not get paid. Chaos will occur and then a sudden rush to hire.

But that same starter house even with 10% interest rate was sold for $150,000. Today it's selling for $600,000 at 4% interest. Salaries have not increased proportionately. So how to us middle class first time homebuyers even enter the market?

You don't in DC proper. It will be the reverse of what use to happen. Buy in the city get some equity and move out. Now you move out in suburbs buy a house and pine for the time when you can get back into the city. A lot like what happens in NY City. Everyone would love to live in Manhattan but the day never comes unless a certain level of wealth makes it into your life

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Federal budget cuts will result in a significant loss of jobs in the area. The national economy will continue to improve, and interest rates will rise nationally. These two forces will pull down demand and increase the cost of buying, respectively. Housing prices will at minimum not go up as much as some may think and could actually go down locally.

Back in the 90's same thing happen. Cut ton of federal jobs. The amount of work didn't change but fewer people. What happened...they hired contractors who tend to make more than federal works. Thus home prices went up and back then the interest rates were nearly double what they are now. The work has to be done one way or another. Let SS checks not get out, let the military not get paid, let the doctors working at the VA not get paid. Chaos will occur and then a sudden rush to hire.

But that same starter house even with 10% interest rate was sold for $150,000. Today it's selling for $600,000 at 4% interest. Salaries have not increased proportionately. So how to us middle class first time homebuyers even enter the market?

Actually they have. Also now most households are dual income. Just because YOU can't afford to buy a home in your desired neighborhood doesn't mean others can't.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Federal budget cuts will result in a significant loss of jobs in the area. The national economy will continue to improve, and interest rates will rise nationally. These two forces will pull down demand and increase the cost of buying, respectively. Housing prices will at minimum not go up as much as some may think and could actually go down locally.

Back in the 90's same thing happen. Cut ton of federal jobs. The amount of work didn't change but fewer people. What happened...they hired contractors who tend to make more than federal works. Thus home prices went up and back then the interest rates were nearly double what they are now. The work has to be done one way or another. Let SS checks not get out, let the military not get paid, let the doctors working at the VA not get paid. Chaos will occur and then a sudden rush to hire.

But that same starter house even with 10% interest rate was sold for $150,000. Today it's selling for $600,000 at 4% interest. Salaries have not increased proportionately. So how to us middle class first time homebuyers even enter the market?

Actually they have. Also now most households are dual income. Just because YOU can't afford to buy a home in your desired neighborhood doesn't mean others can't.

The middle class and suburbs are really the easiest to examine. So what can a middle-class dual-income family earn? Well, in this area lets consider the following family profile:

Spouse 1: IT sector, unambitious, but not lazy, 30-35 years old; salary: $120k
Spouse 2: Teacher, 10 years of experience, masters degree, 30-35 years old; salary: 80k
Total annual income: $200k
2 children over 2 years old.

These are both very attainable numbers for the DC area with these profiles. With the 3-1 ratio of mortgage to annual income, a mortgage of $600k is affordable. Let's range that to $450-$650k. Let's say that there is a down payment possible of $20k to $130k. Then the total range of affordability is $470k to $780k. And there you have. Homes for the middle class will cost between $470k and $780k. I would say that we are there and on target.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Federal budget cuts will result in a significant loss of jobs in the area. The national economy will continue to improve, and interest rates will rise nationally. These two forces will pull down demand and increase the cost of buying, respectively. Housing prices will at minimum not go up as much as some may think and could actually go down locally.

Back in the 90's same thing happen. Cut ton of federal jobs. The amount of work didn't change but fewer people. What happened...they hired contractors who tend to make more than federal works. Thus home prices went up and back then the interest rates were nearly double what they are now. The work has to be done one way or another. Let SS checks not get out, let the military not get paid, let the doctors working at the VA not get paid. Chaos will occur and then a sudden rush to hire.

But that same starter house even with 10% interest rate was sold for $150,000. Today it's selling for $600,000 at 4% interest. Salaries have not increased proportionately. So how to us middle class first time homebuyers even enter the market?

Actually they have. Also now most households are dual income. Just because YOU can't afford to buy a home in your desired neighborhood doesn't mean others can't.

The middle class and suburbs are really the easiest to examine. So what can a middle-class dual-income family earn? Well, in this area lets consider the following family profile:

Spouse 1: IT sector, unambitious, but not lazy, 30-35 years old; salary: $120k
Spouse 2: Teacher, 10 years of experience, masters degree, 30-35 years old; salary: 80k
Total annual income: $200k
2 children over 2 years old.

These are both very attainable numbers for the DC area with these profiles. With the 3-1 ratio of mortgage to annual income, a mortgage of $600k is affordable. Let's range that to $450-$650k. Let's say that there is a down payment possible of $20k to $130k. Then the total range of affordability is $470k to $780k. And there you have. Homes for the middle class will cost between $470k and $780k. I would say that we are there and on target.

+1. dc was underpriced for years relative to salaries. The city simply has been catching up. I purchased in DC three years ago and was able to buy a home for less than 2x hhi. Very few other cities would allow us to earn these incomes and have such a low housing expense.