Tuesday, April 14, 2009

The DP on CAAR's Q1 2009 Market Report

The Daily Progress' McGregor McCance has an article on CAAR's First Quarter Market Report. Realtors Michael Guthrie and Greg Slater, who have recently added comments and data here and here, are quoted. The article gives the hard numbers but no spin; just the hope expressed that first-timers will take advantage of low interest rates and the $8K tax credit.


downtownenvy said...

I think that a lot of first time buyers are excited by the rates and the tax credit, but I'm not sure that in Cville it's enough of an incentive. We qualify as first time buyers because we have been waiting this market out for 4+ years in the hopes that we could afford a house similar to what we previously had in regards to age, sq. footage, etc. Still hasn't happened.

When we look at the prices on single family homes that are large enough for 5 people in the downtown area with work from home space removing $8000 from the price doesn't even make a dent. The rental market, however, has been great for us. Maybe we'll change our minds this year, but I still don't see it happening. $400,000+ for 2200 square feet is a stretch to get to around UVA for some reason:). I am always wondering how many others are also holding out to see what will happen? I think there must be more than a few.

Nalle said...


I tend to agree that it can be daunting looking at great houses/locations in C'ville due to the price. However, I would disagree that an $8000 tax credit (if you qualify) does not make a dent. Its important to note that we buy homes with leverage, currently at 5-1. Which means that the $8000 you put down (and get back) buys you $40,000 worth of house. Of course, this doesn't help with the monthly payments. . but sub 5% mortgage rates takes care of that part of the burden. Add the tax credit on top of the cut-throat haggling that you will employ with the seller and you might have a good deal.

Another thing that some folks are muttering about these days is inflation. With the government printing money there is a real chance that we will see significant inflation at some point in the next year or two. During an inflationary period. . renting becomes more expensive (because $ loses value) and paying a fixed interest rate (a mortgage) becomes very attractive. It is also likely that the fed would fight inflation by raising interest rates (standard operating procedure for Bernake) and the current rates will look even more amazing.

Know one knows what will happen. . . but it probably make sense to consider a few different future scenarios.

downtownenvy said...

Thank you for the input. You have definitely given me more perspective on this. Certainly food for thought.

Real C'ville - The Bubble Blog said...

downtownenvy, Nalle makes good points. Of course we appreciate the "cut-throat haggling" part.

Wondering if you read the 'Gen Y priced out of the market' post...it discussed renting being cheaper than owning in many scenarios, especially if one needs a larger house. Since you are presently LTR, might interest you.


While many economists agree there is inflation in the future and that mortgage interest rates will rise, some economists also say that the higher interest rates will push house prices down...because buyers can only pay so much. Toss in the VHDA info about this area, which indicates more foreclosures and 'price correction,' and buyers have some serious considerations to weigh this year.

downtownenvy said...

That is actually what I am hoping for in regards to our economy. Perhaps I am naive, but I truly believe that prices are going to go down even more. Frankly, I am still too worried about that scenario of a home losing its value right after closing, so I am willing to take a chance and wait. Also, my idea of haggling would make most sellers laugh out loud.

Most of the properties I have seen strike me as being overpriced by $150-200,000. I am still not brave enough to make that kind of lowball offer...

Scott Pershing said...

Nalle, you bring up a good point about the 5 to 1 ratio, but the problem is many houses in the $400K and up range are overpriced by at least $40K.

So the tax break only helps if you can negotiate a seller down to a realistic level...

I tend to agree with Real C'Ville in the sense that renting makes more sense than purchasing if the prices are off by at least $100K and if you are not sure that you won't make a change in 4 years.

Right now we aren't seeing inflation because all the money being printed isn't being circulated in our economy.

All the money being printed is being paid out to bank counter parties in other countries and other banks for their trash assets (Goldman Sachs, JP Morgan, et al) to prop up their earnings to make everybody believe that everything is going to be ok on the economy.

When Obama finally gets around to helping the average American put money into their pockets (jobs, govt loans, etc) then you may see an increase in interest rates, until then we might as well get used to the smell of napalm. :-(

Anonymous said...

Nalle said:"Its important to note that we buy homes with leverage, currently at 5-1. Which means that the $8000 you put down (and get back) buys you $40,000 worth of house."
This is something agents like to say but I don't get it. Can somebody pls explain how it works in simple terms or to provide an example. Is this leverage statement true in a flat market? Something tells me it can't be true in a declining market or I just can't comprehend it.

michael guthrie said...

I have been a Realtor for 26 years and Nalle's comment about the 5-1 ratio is the 1st time I have heard it. I'm not sure I agree with the leverage statement either and would like it explained but, unless you have personally heard an agent say it, why are you trying to make this statement into Realtor hype?

Anonymous said...

I am not talking about this specific ratio (5-1) but in general about the leverage as an argument for taking a mortgage and buying a house. I am wondering if it works in a flat or declining market and how. You can take 4-1 or 3-1 ratio because I think it doesn't matter for explaining that concept. I can't tell you what exactly my former agent said about leverage because I honestly didn't get it and don't recall exact wording.

michael guthrie said...

I personally would never use the leverage explanation except to an experience investor who understands the concept of Return on Investment, positive or negative cash flow and who is willing to borrow money based on their understanding of those concepts and a confidence that what they buy will one day appreciate. Not to nit pick but, your comment was "something agents (as in plural)" say vs what your former agent said. I just don't want all Realtors generalized by what one might have said.

Nalle said...


To me, leverage is the use of financing in order to increase your buying power. Basically, when buying a house you put down a chunk of cash (say 20%) which is your equity. The rest of the deal (in this example, 80%) is owned by the bank (your mortgage). Over the time you own your home, your "equity" is the difference between the market value of your house and the amount that the bank owns (the mortgage). So (and perhaps Michael can correct me here) to my knowledge, everyone purchases a house using leverage. .its the name of the game. The scary part of the game is that when you borrow money, you don't exactly have an equal share in the property you purchase. If the value of the house goes up. .its fantastic. . the bank still owns the same amount (mortgage) and your equity increases! However, if the price of the houses decreases, the bank still owns the same amount and your equity decreases . . or vanishes. Understanding this is key to understanding why some sellers are reluctant to reduce the prices of their homes.

I find it hard to believe that real estate agents do not talk to their clients about financing. . its a very large part of the process. Buying a house entails borrowing a great deal of money and thus taking on a great deal of risk. . it can be both a very good business deal (and satisfying) but it is unfortunate that so many people have treated it casually in the near past.

Philip said...

Nalle correctly explains leverage, adding: "I find it hard to believe that real estate agents do not talk to their clients about financing. . its a very large part of the process. Buying a house entails borrowing a great deal of money and thus taking on a great deal of risk."

Leverage is basic and almost always essential when it comes to buying a home. It may have negative connotations now but leverage is how people historically built up home equity and made great fortunes in other parts of real estate too.

However, buying a home historically has NOT involved much risk. It's only in recent years when the system broke down and people borrowed much too much to buy much to much that leverage became a dirty word for homeowners. Even back in the Great Depression, people lost their homes not because they used excess leverage to buy but because the economy was so bad--much worse than it is today.

Real C'ville - The Bubble Blog said...

Downtownenvy, you're not alone in holding out, fwiw. We've had a few emails about this, and have encouraged the prospective buyers to come onto comments.

Anonymous said...

Nalle, Philip
Thank you for your input. As a first time home buyer I was trying to understand that leverage argument in todays RE market and nothing more (no offense, Michael).
From what you write I am getting the following (correct me if I am wrong): 1. leverage = indebtedness 2. it is a positive thing for a buyer only if the value of a house go up.

Nalle said...


1. Leverage is indebtedness (which Philip correctly notes has become a dirty word recently because of excess). 2. It can be a positive in ANY market because it reduces the amount of actual exposure one has to take in a house. Most importantly, it should allow for homeowners to gain a nice increase in their home equity under NORMAL market appreciation. Basically if your 400,000 house appreciates at 5% a year (ignoring all externalities and understanding that I have no idea what constitutes "normal" market appreciation anymore) then after five years it will be worth 486,000. If you put down 20% (80,000) then you've earned a very nice return (100% in five years). Again. . this ignores mortgage payments, upkeep, closing costs etc. . which will take out at least 20% of that gain. If you were to have put down 400,000 (using no leverage or debt) then you are making much less (percentage wise) on your investment. Leverage (or the use of borrowing from banks) should allow home owners to be happy with normal growth (as their return gets increased) but at the same time you are taking on the risk that house prices might come down (in a given period) although I would make the argument that once prices correct a little (and its hard to say how much they will correct) we should expect to see continued appreciation of housing prices in the area (although it will vary a lot house to house and neighborhood to neighborhood). I don't know if the bubble blog agrees. . but I think that Charlottesville will continue to see a net inflow of people and (more importantly for house prices) affluence as DC continues to spill over and the ability for a variety of technical and financial jobs to migrate to small towns continues.

p.s. I should have, and I apologize, noted in a previous post that MANY real estate agents speak to their clients about financing or more importantly put them in touch with some of the MANY excellent loan agents in town. When we purchased our house we were certainly given all of the details and so far I believe we were steered correctly by both our buyers agent and loan officer. They can't read the future (nobody can) and no one should go into such a large financial deal without understanding all of the implications. Real Estate Agents have certainly been guilty of being overly optimistic about the markets (some more then others) but I think its ridiculous to blame them for what is a very simple market interaction, if you don't like the price. . don't buy it. But don't blame anyone IF prices start going back up and you are still on the sideline!

michael guthrie said...

I was not inferring that Realtors don't talk about financing when I was speaking about what it means to be leveraged. In fact, we encourage prospective buyers to meet with a reputable lender before even showing them property. That way, they know what they can qualify for a loan that meets their particular needs. I am sorry if I gave you the wrong impression.

Anonymous said...

Foreclosures are soaring again:

Next month's press release from NAR, CAAR, etc.: "Jump in home sales exceeds expectations!"

Real C'ville - The Bubble Blog said...

Anonymous, appreciate your cynicism/humor. But actually, since the Big Banks are just now lifting their moratorium on halting foreclosures (they agreed to stop until March 12, waiting for Obama's Making Home Affordable plan) foreclosure re-sales won't pick up again for a few months.

That being said, foreclosures will continue to drive sales in CA, NV, AZ and FLA, since these places have home"owners" who for the most part cannot qualify for Making Home Affordable rescue due to Jumbo loans or being "too far underwater" in the mortgage.

Phillip makes an excellent point: historically, buying a home DID NOT involve risking your entire financial life (or that of the country/globe) and did NOT entail worrying about depreciation. But then again, the rate of appreciation was small and dependable: 1/2-1% plus 2% for inflation, annually.

When Michael points out that the phrase 'it's a great time to buy' is worn out, he's right. It may be for some, but others may not have the stomach for "risk."

Real C'ville - The Bubble Blog said...

Nalle said,

"I don't know if the bubble blog agrees. . but I think that Charlottesville will continue to see a net inflow of people and (more importantly for house prices) affluence as DC continues to spill over and the ability for a variety of technical and financial jobs to migrate to small towns continues."

An issue with folks coming from elsewhere is that many of the places from which they're coming have had big losses. Many parts of the greater DC area have had losses,for example.

WaPo has an overview of losses during 2008:

CAAR also recognized that this is an issue with potential NGIC buyers. There will be fewer than were hoped for, in 2010/11. Many who will take jobs in this area simply cannot "afford" to give up the house they have in the DC area b/c values have dropped and the Cville MLS remains higher.

Anonymous said...

The more accurate and ethically responsible thing for agents to say would be: "for most people, it is NOT a good time to buy." If buyer's agents started acting like real fiduciaries and always put their individual client's best interests ahead of their own, there would be very few out there right now recommending purchases. Every indication is that prices in this area will fall precipitously over the next year. Many owners/sellers are holding out, absorbing their carrying cost, hoping for a miracle turnaround that will never happen. I would be very concerned as a buyer's agent in this market. If prices here fall 20 to 35 percent, as many analyses (incl'g VHDA's) predict, could I be sued for ignoring all these red flags and advising clients that now is, in fact, a good time for them to buy?

Anonymous said...

I would not expect any net inflow of affluent Washingtonians in the foreseeable future. The value of my home in a very desirable DC suburb fell more than 25% last year. Historically, housing in C'ville should be considerably less expensive than the area I just left, but that clearly is not the case -- so I'm stuck renting for now, waiting for the prices here to become rational.

And I wouldn't count on any migration of tech or financial jobs to C'ville. First, there are far fewer of those jobs around these days. Second, the cost-benefit of relocating such jobs here is very hard to justify, especially with the inflated cost of living here and the limited reach of the local airport. The few, slim opportinities here pale in comparison to tech/financial areas already developed, such as the Dulles corridor. The NGIC move is in my mind a fluke, and certainly not indicative of any significant migration in this direction.

JH said...

If Realtors were regulated by the Securities and Exchange Commission then they might have a fiduciary duty. As it stands though they are not. How many agents are taking the VHDA material to their clients? If they were wouldn't sellers (the ones who can) be pricing differently and buyers be making different offers? Nalle seems to have an optimism about prices going back up but nothing I've read really substantiates this.

michael guthrie said...

Real Cville Bubble Blog is correct in saying that CAAR does not see the NGIC/DIA move being a panacea for the real estate market here and sellers shouldn't expect a huge up tick because of it for the following reasons:
1) The move will start small this summer with the significant amount of transferees not coming until the fall of 2009 through the Spring of 2001.
2) As mentioned, folks won't buy right away because they can't sell their home where they are right now.
3) and one I don't see mentioned very ofter, Alot of these transferees already live out in the surrounding counties of DC and where NGIC is located now. Many will reverse commute to Cville and find the commute and easier one that they have now.

Nalle said...

Points well made on likelihood of increased jobs in the area. I should clarify my optimism a bit with regards to housing prices. I feel, for a variety of reasons, that housing prices in the city core (around UVA and Downtown) will continue to climb (once there has been a sharp correction). Folks are being drawn towards urban centers by a variety of factors (less driving, nice restaurants, smaller houses etc). I think that if you look at the cost of houses close to UVA and Downtown in certain neighborhoods (which are pretty high) you could make the argument that other areas will start to catch up (or already have started to catch up). On the broader market I most certainly agree with the common sentiment here that housing prices have to fall. I don't know why someone would want to buy into one of the recent large housing developments. . . . the prices are still too high.

I guess. . my point would be that if housing prices settle or you can find a house today at a reasonable price. . you should be able to expect some appreciation. .but where you buy is critical. I just don't see Charlottesville losing favor once the economy recovers. . . yes times are tough now and folks aren't moving. . but give it a few years. Also, not everyone bought a house in northern Virginia in the last 4-5 years.

Am I overly optimistic? Probably. . but I also have a job and a nice house in a cool neighborhood, we rent part of the house and live comfortably in a small apartment for very little. . . perhaps part of the solution is in dialing down everyone's expectations on their "dream house".

Real C'ville - The Bubble Blog said...

Nalle...maybe you're one of the Gen Y's NOT priced out of the market. Or maybe you don't have kids (yet)...which definitely makes a differencein the kind of space one needs. Especially in a small town surrounded by lots of land; people don't come here to live as if they're in NYC...at least, not long term :0)

You say "not everybody bought in the past five years," meaning that not everybody paid a bubble price. True, but if neighbors are listing at X, a seller tends to list at X. And even if somebody didn't buy at a bubble price, they still might have engaged in a bubble practice, which was a cash-out re-fi. That or a HELOC can cause pain when owner tries to sell because then seller 'has' to make a certain amount of $.

For Pavel and Greg: What we're wondering right now is, of the buyers who are purchasing the properties mentioned by Pavel Dovgalyuk and Greg Slater, those at the $240k and 'under $300K' prices, how many of these sellers are "moving up," and how many are leaving the City for other jobs? (ie, it's Medical Resident Exit time). First Time Homebuyers are essential to any market because they allow others to move up. Is that going on here? Or does the "sale trail" end with the sale and no new purchase?

Anonymous said...


Hi, potential (or eventual) cville homebuyer here. Jumping in since the awesome bloggers seem to want buyer input. I follow this blog and realcentralva very closely and have for a while as my spouse and I are moving back to cville in the next year. I am not a real estate expert but I have been fascinated and somewhat annoyed at how many houses that I'm watching are listed at $30-$40K higher than when the buyers bought in '05 and '06.

I'm looking for a long term home, not an investment per se, so I can handle some depreciation, but I just can't imagine paying more than bubble prices these days, especially after selling my current home (purchased in '06) at a big loss. What are cville sellers thinking? They really think they are going to make a profit after buying at the peak and selling at the trough of the bubble?

I'm not-so-patiently waiting for some realistic prices to show up. Then I'll run, not walk, to buy.

As a seller, I recognized the bubble pop and priced accordingly (<60 DOM, dropped price, 3 offers in one week, TYVM). Now as a seller I spend much time rolling my eyes and twiddling my thumbs.

Nalle said...

Anonymous, home(not house)buyer.
Out of curiosity, where did you sell your house (did you recently move to town or considering a move)? Also, if you don't mind, what price range are you looking at in the area?

In a related aside. . I've been seeing more data and article that suggest the small-companies will have a lag on adjusting their employment rolls (as its more complicated for a small company to layoff employees and their is incentive to avoid doing so). UVA has "frozen" hiring but also resisted significant reduction (to my knowledge). We've seen a few layoffs at the "bigger" firms in town but I haven't really seen any significant layoffs in months. . . also, where would people who lose their jobs go? ie: where does significant pressure to sell houses come from?

Real C'ville - The Bubble Blog said...

Nalle...UVa has wage freezes, too.

You have to take into account that otherwise qualified buyers may be cash poor right now: think about monies that potential homebuyers may have just lost, in their stock accounts and/or in IRAs. BTW, every major employer in the region--not just in the City--has had layoffs and furloughs (you can search this on the DP website).

A qualified buyer just a couple of years ago wouldn't have had to put 20% down. Then again, a few years ago, even at the peak of the national bubble, the price would have been lower in Cville.

At a certain point, you have to look at house prices this way:

According to CAAR, the average increase in median prices is 70+% since 2002.

This recognizes what has been sold. It does not recognize the upswing in asking prices.

In the same time period, what's happend to jobs? Has anybody's wages gone up 70% in the past six years?

Has there been a sudden influx of jobs OR people who work at home that have income streams that can support a 3 or 4 bedroom home that lists for between $350K and $799K?

We're not the Census Bureau, but based on the fact that in the County and the City alone there are now about

900 single family homes for sale

and more available daily, plus condos, and townhouses, and a few thou more properties in the surrounding Counties--we're going to go ahead and say that supply is going to far exceed demand until cash starts raining from the clouds.

Doesn't it make perfect sense that the lower-priced properties are selling? These are condos, cottages, and townhouses in the mid-$200s.

Isn't this price point in line with the City median income (CB 2007) of $48K/family of four; slightly higher in the County--?

Anonymous said...


We sold our home in the Hampton Roads area, so a similar housing market as Cville, but possibly a stronger one as we have a military influx every spring. (Supposedly a similar price adustment timeline as Cville according to your blog so we felt it would only get worse and priced to sell.)

We will be looking to stay close to or under $350K, but we may have to go over that to find what we're looking for (3+ bedroom, close to town, room to grow.) I tend to scan the listings for houses up to the low $400s in hopes that someday they will creep downward.

We could be buying as early as this summer or as late as next summer, depending on a number of factors, including whether or not a great house appears at a great price.

sorry if this reposts

Nalle said...

Bubble Blog.

I wasn't making the argument that there are buyers who are supporting high prices, I don't think that there are. I agree that the price increases have been out of sink with income increases . . and obviously were based on an underlying assumption that it was a "fool-proof investment".

The argument I was thinking about (and I'm not fully convinced) is that maybe prices are staying high because there really isn't a lot of selling pressure. What would force folks to sell houses in Charlottesville? Where would you go? Surely some developers are going to be forced to sell . . they can't sit on empty houses forever since they are dealing with short terms debt themselves. Condos could be converted to apartments. . .

Look, I'm on board that prices are too high in Charlottesville, but not entirely convinced that all of sudden everyone is going to start lowering their prices and I'm trying to get a handle on the reasons why they would.

Anonymous said...

In a word the problem is "comparables." Whether you want to blame reliance on comps to Realtors or to Sellers that's what's going on here.

The numbers should be from the past three months which is what appraisers and therefore banks use. But there haven't been many sales in the past three months so comps are from an earlier point.

Developers aren't bothering to sell or can't sell. They're just going into foreclosure.

Anonymous said...

I've seen this happen before in another market -- and as the data and conclusions from VHDA (and elsewhere) confirms, Cville lags other markets by about one year.

Agents here have been talking up the fact that it's spring and there are some signs of interest now from buyers (mostly below $300k) -- same as there is every year at this time. So, why drop prices now, when we're entering the peak selling season?

But at some point this summer, when the market begins to cool -- as it does every year, the many remaining sellers will realize that they've just missed the best opportunity to unload their properties and there will be a mad rush for the door. Prices will "cascade" as those who do not want (or cannot afford) to see their homes sit on the market through the fall and winter, must sell.

If buyers can hold out until then, there will be many more affordable homes from which to choose. And the quieter the market is this spring, the sooner we will see this cascade in prices.

Anonymous said...

Exactly the reason we're not buying this Spring. There's absolutely no point. It's not possible for prices to go up any higher. Selling prices, that is. Asking prices can remain to the moon as much as they want. I suspect that the houses under $250 thousand that are selling right now are being bought by people who don't live here. These buyers therefore don't actually know what kind of neighborhood they're buying into.

--Anonymous 3

Real C'ville - The Bubble Blog said...

Nalle, Been meaning to get back to you on this:

"The argument I was thinking about (and I'm not fully convinced) is that maybe prices are staying high because there really isn't a lot of selling pressure. What would force folks to sell houses in Charlottesville? Where would you go? Surely some developers are going to be forced to sell . . they can't sit on empty houses forever since they are dealing with short terms debt themselves. Condos could be converted to apartments. . .

Look, I'm on board that prices are too high in Charlottesville, but not entirely convinced that all of sudden everyone is going to start lowering their prices and I'm trying to get a handle on the reasons why they would."

That selling prices remain high because there's not a lot of pressure to sell could be accurate: according to Jim Duncan, as long as he's been tracking vacant properties, the number has remained fairly consistent...between 28-33% (search "consistently vacant properties" on his blog). A house that remains unsold and vacant (can think of a number of them just off the top of the head that have been vacant for more than 6 months) clearly doesn't "need" to be sold. Unless an owner overburdened himself with a massive HELOC, the longer the property has been owned, the less it should "need" to sell...b/c the mortgage is lower and/or it has been paid for.

On the other hand, perhaps asking prices remain high because there are so few sales. If sellers are looking around and seeing what others made in the past few years, not in the past six months (which for the BUYER's pov should be 3 in terms of sold comps), the earlier amount is obviously what they'd like to get out of the property.

As for where people are going? Well, according to today's Census Bureau report, fewer people are going fewer places than they have in the past 50 years..."migration" has been halted due to Recession and sellers trapped in their homes and job losses....