Tuesday, May 11, 2010

The DP: "Now's Still the Time To Buy a House." Or Is It? Chances Are That Next Month, Next Quarter, Prices Will Be Lower

This post covers inventory, housing headwinds, a local newspaper columnists' opinion, the one-month moving median price for new listings, sales in the City of Cville.
Recent low sales and perceived "low" median prices, combined with some other factors, prompted the local newspaper's weekly investment columnist to suggest several reasons that "now" is the time to buy:
"Home prices are well below 2005 averages, and time on the market is well above the healthy market average of 90 days.  Sellers have been slow to realize that their home isn't necessarily worth the appraised value or what they paid for it or even what they owe.  Houses are simply worth whatever the market will bear, which is a lot less than it was at the peak of the market three years ago.  National trends have followed a similar cycle."
The piece could stop right here and be required reading for all sellers.  Instead, it goes on to this:
"...markets can turn quickly.  Now we are contrarians again, looking at the trends and trying to gauge if there will be a second precipitous drop before the bottom.  I don't think so.  I think that we are near the bottom and brighter days lie ahead."
There's plenty of data to back up the idea that housing is heading toward a much lower bottom.  But there's no data indicating "brighter days lie ahead." Consider:
Housing is floundering on a national basis.  However, there's a recent noticeable local trend with what looks like local sellers believing recovery has begun and therefore pricing their listings accordingly.

RealCentralVA has the 30 Day Moving Median Price for New Listings, April 10 - May 10 2010.

There's no "rhyme nor reason" to support this exuberance.  In the Charlottesville Albemarle area,  2008 real estate sales were the slowest in a decade.  And then came The Great Recession and 2009 ended with even lower sales than 2008.  It wasn't hard in  Q1 - 10 for some areas of Central Virginia to beat the same time period in 2010.  
Inventory dropped for a couple days at the beginning of May.  Below are the numbers from May 10 (top is May; bottom is April).  With the way inventory is piling up, by the end of the week, May will exceed April's inventory.  Image copyright CAAR.
Some sectors of the market are in big trouble: in Q1-10 detached single family homes in Charlottesville were down -20% over the same time last year, while 2009's sales were down -46% over 2008).  Inventory is up +20% this time over last year in this sector; ditto for Albemarle County.

Thinking of buying a house?  That asking price is somebody else's notion of value.  A buyers first duty is to lowball, and keep these things in mind.


renting said...

"brighter days lie ahead" is the same euphemism i've been hearing at open houses the past couple of months, including

"priced appropriately"
"protected area"
"protected market"
"priced well below assessment"
"won't last"
"many updates"
"hard to beat"

interestingly, most of these houses, which are in the city, mid-price range, haven't sold and all but one have had significant price drops.

i have definitely gotten the sense that sellers think market is turning around. i just don't see it. i don't think buyers do. where are sellers getting this idea?

Humpty said...

In case you missed CBS's 60 minutes last Sunday here is the clip:

Humpty said...

Listen to Roubini. The economy is going to slow in the 2nd half. What do you think that will do to real estate prices?


"Nouriel "Dr. Doom" Roubini sounds less cataclysmic than he did two years ago, when he was one of the only folks warning of impending disaster, but he still doesn't come bearing good news."

Anonymous said...

"But there's no data indicating 'brighter days lie ahead.'"

NO data?

National employment up, albeit still in recovery.
National home sales up this month and compared to one year ago.
Dow up 4000 from last year.
Economic growth up 3.2% from last quarter.
Consumer confidence up 6 points this month over last.

Don't underestimate the nation's psychological and economic influence on local markets.

NO data? Let's not be so gloomy.

downtownenvy said...

At an open house last weekend the agent told me not to expect too much negotiating on the price because that neighborhood always bears higher prices. Never mind that there are two other homes for sale on this same street and 3 more on the next street.

I've been watching homes in this hood for a while, and so far there haven't been too many sales, but there are tons of listings and lots of rentals that used to be owner occupied.

Humpty said...

Sorry to post so often but I cracked up when I heard that the Senate wants to pass a bill that stipulates a minimum 5% down payment on the purchase of a house. What a joke!!!

Years ago you needed 20% and if that rule of thumb by lenders hadn't changed we wouldn't be in this mess and very few if any owners would be under water. If 20% were the case today then we would see a serious price decline. It should be the case but unfortunately, no-one has the political courage to do it. Going on as we are is just sweeping the dirt under the carpet. Eventually all these liberally fiscal policies will come back to haunt us even more.

If we see a 25% decline in prices from the current trend what will that do to all those 2009/2010 buyers? More walk aways?

Star Chamber said...

I've said it before but it's worth repeating. The only people who are putting a floor under housing prices are Realtors. That's what "comparative market analyses" are for.

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

Renting, sounds like 2000-2008, doesn't it?

Humpty, appreciate all your comments and links. Commenters often have "on the ground" insight on this blog, as buyers.

Anonymous 10:08, this blog perhaps should have made the distinction that there's no housing data to support such optimism.

However, on momentary further reflection, there's little economic data to support the wider optimism, either, except as you put it the "nation's psychological" influence.

*State and local unemployment is rising, and national just went to 9.9.
*8 Million jobs lost since 2007, worst since Great Depression, and most of 'em ain't coming back:


*GDP is "restocking," not an uptick in production.
*"Consumer confidence" only goes so far w/stagnant wages and overleveraged households.
*DOW is about 35% overvalued. A PIIGS debacle, a correction/crash would shock nobody at this point.
*Read around on The Market Ticker (linked in sidebar) and theautomaticearth.blogspot.com for info beyond the headlines.

Downtownenvy, this blog has had prospective buyers report similar experiences in Keswick, and in the City in the Greenleaf, Fry's Spring and Belmont neighborhoods, and for Crozet.

Perhaps the commenter "Serious Buyer" will post a recent conversation that was had with a real estate agent out at Lake Monticello (or give the blog permission to post.) It was a step-by-step explanation of pricing in this area. Eye-opening.

Humpty said...

Housing Market Poised for Another Leg Down

Editor's Note: This article was written by Richard Suttmeier, chief market strategist at ValuEngine.com, which is a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.

Data Showing Foreclosure Crisis Easing Is Misleading

Foreclosure filings may have fallen 2% year over year in April for the first such decline in five years, but that’s because bankers cannot keep up with the number of distressed homeowners. Many Americans are in “modification limbo,” waiting for decisions with regard to getting a temporary loan modification; others are in temporary modifications hoping that they become permanent. While this backlog grows, bankers are allowing other homeowners to stay in their homes even as mortgage payments are in arrears, as the process of foreclosures has a building backlog of its own.

As the government programs wind down, there will likely be a deluge of foreclosures in the months ahead leading to anther leg down for home prices in many locations throughout the United States. The number of new delinquencies may have stabilized, but banks seized a record 92,000 homes in April, and there are millions of potential foreclosures still to come. According to Lender Processing Services, nearly 7.4 million homeowners with a mortgage have missed at least one mortgage payment through March. RealtyTrac reports that 334,000 households received a foreclosure notice in April, which is a big number, but down 9% from March.

Unemployment or reduced incomes have become the catalysts for foreclosure, and folks with good credit scores with conventional fixed-income loans are now the fastest group heading for foreclosure.

The Housing Market and Banking System are thus headed for a second leg to “The Great Credit Crunch." Foreclosed homes become OREO at banks -- who sell at lower prices -- which reduces appraised values in the community. This causes cities, counties, and states to lose tax revenue resulting in budget cuts, and the trend is that municipal workers are having workweeks cut to four days from five, which brings additional households into mortgage distress. And the beat goes on!

John Doe said...

UVA is like the Goldman Sachs of higher education, all about making money at the expense of everything else. It's no wonder that the local RE market is in the bubble / denial phase, just following the local norm.

BTW, the thing that's putting this little town on the map more than any "Top 10" or "Best of" list is the Yeardley Love murder. It will be on Monday's cover of People Magazine as well as long article in Sports Illustrated and relentless coverage by Washington Post.

Anonymous said...

UVA = Goldman Sachs?
Who is it that is making all this money? Read the faculty salaries section of the Cav Daily lately? Where are those year-end bonuses?

Anonymous said...

as if *faculty* are the most important part of UVA


Bleeeeeed It said...

An issue with the condos is that Water Street is dangerous. Who feels safe walking there at night?


"Recovery" or lack of it summed up nicely


Anonymous said...

Serious Buyer,

In the past month I have spoken to four real estate agents who have sold the greater C'ville area as being
* 'protected' or insulated from massive foreclosures and further price declines
* bargain priced given the reductions in assessments of 2008,2009,2010
* known for great public schools and community spirit
* soon to follow on the heels of NOVA into a rebound in prices

One broker expressed the belief that Lake Monticello is on the verge of a rebound and historically speaking, NOVA led the Lake out of the slump of previous market collapses. Relying on the large differential in the median single family home price of NOVA vs. Charlottesville, there is a belief retirees will migrate south to save money on housing. Those that aren't retired, will find work as employment picks up. There is conviction that the housing market will continue to improve and the TV news is too negative. There is a belief foreclosures will not increase.

Sellers are being advised to hold prices. Some new home builders have even slightly raised prices.

Well everything is relative, so I looked up May 16 median price single family home on Altos Research.

Charlottesville $356,877
Crozet $405,664
Palmyra $253,197

Arlington $725,165
Alexandria $592,596
Silver Spring $381,740

I am more than 2 decades old and have lived in several states on the East Coast. In my lifetime, the relative pricing of real estate south of the Mason Dixon line has always been less than above. Therefore, IMHO it is anybody's guess which way this may go. With few exceptions the prices are still not low enough for profitable real estate speculation in the C'ville area, so I tend to think that we have not hit a bottom. I also firmly believe that bursting bubbles heal only with time, not political intervention.

There may indeed be bargain pricing at Lake Monticello. However, it is hard to fathom that in Charlottesville the average square foot price is cheap for the age and condition of the general housing stock. I will continue to be picky and hold onto my $ until I see value.

Humpty said...

@ Anonymous said...May 16, 2010 9:38 AM

You make an interesting comparison. I would just like to make some additional observations about NOVA and C'Ville

There is nothing typically historical about this downturn. At least not in our lifetimes.

NOVA or metro DC has historically been quite a sleepy real estate market. Before 1996 the market didn't really appreciate in 30 years compared to other markets like MYC, Boston, LA, SF.

The recent boom in prices was fueled by very cheap money, which increased the buying pool, never seen before and will not be seen for many years to come.

The last few cycles I have experienced the peaks were corrected by high interest rate hikes. Then in the following years as the fall out problems were worked out and the economy stabilized we saw lending rates come back down.

This is what makes this property recession unique. House prices have declined as rates have remained low. The government has done everything in its power to give life to the RE market and still it stumbles. Foreclosures and loan defaults are historically unprecedented. The market is extremely vulnerable. A hike in rates would cause another major leg down.

Back to NOVA, which has seen a huge growth in government jobs and stimulus money. It's probably the only market in the US (except NYC) that you see brand new Porsches, BMWs, Bentleys and Audis on the road. Hey, your tax dollars at work with all those lobbyists suckling on the "Stimulus" dollars. With all this injection the RE market has come back some but it's mostly concentrated in a 15-20 mile radius of DC. Go to the outer suburbs and that wealth effect has not trickled down to Centreville et al. Those areas are in deep trouble and default.

The Metro DC market is also vulnerable if in the next two years we see a political change in Washington. One way or another we are heading towards a balanced budget, which will mean either higher taxes or big spending cuts depending on who controls Congress and the White House. What will this do to property prices?

There is still too much debt and leverage that needs to be worked out of the economic system. Normally, after every recession this is what happens. This time around the solution has been to add more debt which will result in a disastrous outcome (much higher rates). It's coming and for now I don't see what can stop it.