FABULOUS NEW PRICE. Sunny, renov. corner apartment listed at NEW LOW PRICE to sell quickly. Almost 1000 sq ft w/ old world charm and fabulous light. Great roof deck, front desk, near metro. No pets. Seller will pay one year's condo fee.
What, you may ask, is this fabulous new low price?
CURRENT LISTING PRICE HISTORY |
|||
|---|---|---|---|
| Date | Price | % Change | Days at Price |
| 5/15/2009 | $499,000 | 26 | |
| 6/10/2009 | $495,000 | -0.8% | |
That's right--they've dropped the price almost 1%. Perhaps you did not want this house at $499,000. But now that it is $495,000 how can you resist acquiring two small bedrooms and a bathroom on an okay block? Assuming a 10% downpayment and a 30-year mortgage at a 7% fixed annual rate, you could save nearly a dollar a day--almost the price of a cup of coffee (if you are not picky about where you buy your coffee)--off of your roughly $3,000 monthly payment.
Snarking aside, check out what the buyers paid for the place in 2005:
| 10/4/2005 | $460,000 | -$5,000 | $455,000 |
They bought near the height of the bubble. Yet they think their house has appreciated by nearly 10% in the intervening four years. Maybe they did a hell of a renovation, but usually buyers who have extensively renovated advertise that fact. And they're not in a gentrifying neighborhood--Kalorama gentrified decades ago.
People's expectations still have pretty substantial price increases baked in. Until people let go of the assumption that offering a mere 2.5% annual profit from the market's peak is a real bargain, prices will not have bottomed.
I agree Megan.
All real-estate is local, so I can only comment on my own micro-bubble.
I bought in May 2006 and have substantially renovated (completely new kitchen from floor to ceiling...heck, the ceiling is actually new too, with wall removed for open-air feel, granite, stainless steel, other stuff too).
I bought my house for $242,500 w/ $6,000 seller assist (so $248,500). If I sold the house today, I'd be lucky to get $240,000 for it within 60-90 days. That's 3 years and a massive renovation later.
My townhouse is a 2-bedroom w/ loft 1.5 bath in a really nice area/neighborhood. Down the street is a 4 bedroom 2.5 bath w/ 2 car garage end-unit townhome. Identical units were selling for $300,000 at the height. This one is currently listed at $340,000.
They bought it for $185,000 back on October 31, 2001. So they are expecting for their house value to have almost doubled in 8 years with some modest renovations.
It's been listed that way for 110 days as of right now.
What is interesting, to me, is watching how slowly the "dawn of a new day" psychology permeates through the market to homeowners assessing their home's value. Some people see it right away, list low, and sell in 3 weeks. Others resist it at all costs and sit on their homes for 6 months, 12 months, and beyond.
Good luck in your home search. Let me know if you ever want to explore West Chester PA :)
I'm amazed that the condo only has one picture at realtor.com. The agent will probably make, what, $15k on the sale, but she can't be bothered to post some interior pictures?
Three percent of an overpriced house is zero.
You may be reading too much into it. If the seller is not distressed, it may be fairly simple; they have no reason to sell at a loss, so they may as well try for more.
If they can't sell it for a modest profit (most of which will go to pay the sales commission), they might stay put. At the very least, they have little to lose by trying to get the price, just so long as someone will bother marketing it for them.
The question here is why anyone bothered listing it. The agent must be desperate for listings, unless the seller is a friend for whom they are doing a favor. Inventory that isn't priced to sell isn't really inventory.
It's marketing.
If anyone broses the listings, they will see this (and presumably other) above-market priced homes. Then they will see some homes which are priced to move, and think they are getting a bargain.
The realtor knows the price isn't realistic, so that's why they're not working harder to market it. Probably not showing it much either. This seller is shooting himself in the foot by ignoring the CMA.
You're looking in DC. Things have bottomed much more in northern VA, especially the farther out you go.
I'm not sure whether this is just an isolated example of people being irrational or evidence of the housing bubble not being fully deflated. It does remind me something that took place during the last housing slump. Housing prices in the area had fallen and we were in the market for a new home. Our Realtor took us to see a home that had a motivated seller. The owners were moving out of state and needed to sell. We made what I thought was a reasonable offer, which was much less than the asking price. The offer was rejected and I asked to see the home again to see if we'd missed something that might justify a higher price. Other than some modest landscaping, the house was virtually the same as those being built in the development.
The owners were there so I asked the husband if there was any room for negotiation. He told me the price was firm. I said, "Look, I know you've only been in the home for a year and you're asking for what you paid for the home a year ago. Considering transaction costs, you most likely are losing money on the sale at your asking price. But tell me, why should I buy your house when I can build the exact same model across the street for $20 thousand less -- and my wife can pick the color of the tile and carpet?" He just said the price was the price and shrugged his shoulders. On the way out, his wife said to me, "Call back tomorrow. I keep telling him he's being unreasonable and we've got to be out by the end of the month." We bought another house. The one we looked at was still up for sale three months later.
I felt bad for the family. They needed their asking price to have any hope of buying a home where they were going. (My offer covered their mortgage balance, but it would have left them with nothing to go toward a down payment on a new home.) I think the husband just could not accept that bad things sometimes happen to good people. He was just praying that someone would come by to bail them out. I couldn't afford to be the answer to their prayers.
My comment wasn't intended as a reply to John's comment. Somehow I messed up the threading.
It may be years before anyone can know whether "Things have bottomed much more in northern VA".
OK, fair enough.
Sellers have been willing to lower prices much more significantly (especially in, say, Prince William County or Manassas) and sales volume has picked up significantly in Northern VA, compared to DC. Over the last few months, inventory has been decreasing in Fairfax, Prince William, Manassas, Loudon, etc.
I think that that's a reasonable sign that it's fallen closer to the bottom than in DC, where unsold inventory is still AFAIK building.
DC prices would have a lot more room to fall if they actually allowed more building (before and now), which on balance I would find a good thing, but people disagree.
John,
Inventory numbers have been updated for June in Northern Virginia. Megan might want to make a note of the blog. The general consensus is that for now, barring further economic erosion, the bubble is over in close-in areas to Washington D.C.
Northern Virginia Housing Bubble Fallout
$500,000 for less than 1,000 sq ft? WTF?!?!? That is just insane. Have property values gone that out of whack there?
Hell, you could rent a nicer place (1300 sqft) in Huntsville, AL (Kiplinger's #1 city this year) for over 40 years for what that shithole costs.
Yes.
DC, like a lot of urban cores, doesn't allow a lot of rapid development or even increases in density. So prices go up. A lot of development occurred on the periphery. Prices still went up on the periphery (partially because people still viewed them as "bargains" compared to further in, partially because people believed that they would always go up, and partially because people expected that there would be a bigger fool to sell them too), but have definitely come down since.
If I'd timed it right, I could have sold a 600 sq.ft. house in Oakland (and not a particularly good neighborhood of Oakland) for $320k. At least I have a good tenant who is paying the mortgage.
Housing prices in Japan declined for at least 15 straight years after their housing bubble burst (according to Robert Shiller's piece in last weekends NY Times), and it may be more like 17 straight years (I haven't verified). Its perfectly possible the same thing could happen here.
I think we are heading into an era where renting will be the new owning.
"No pets." Doesn't that defeat the whole purpose of a condo vs. an apartment?
"$500,000 for less than 1,000 sq ft? WTF?!?!? That is just insane. Have property values gone that out of whack there?"
Where I am two bedroom 1.5 bath parlor level $950,000.
Also, was watching Susie Orman this weekend and a woman called in:
Caller: "After 14 months of trying to sell our home it has finally sold and I can move to the new city where my husband has been renting for the past 14 months."
Caller - "I think renting is throwing your money away."
Susie - "So you want to take all the money you have left and use it for a downpayment on a new home?"
Caller - "Yes."
Susie - "And if your husband gets laid off again and home values keep falling what are you going to do?"
Caller - "Um..."
Until people finally "get it" we are still in trouble.
I also meant to add up top. $3,000 for a mortgage? How many people can afford that? I wish I made that in a month. Much less afford that kind of mortgage.
I'm not trying to brag, but just trying to give my own version of reality: I'm 26 years old and married to a 27 year old teacher who is master's + 4 on the teacher's pay scale in the lowest paying district in her area. After taxes, healthcare premiums, and auto-deducted retirement accounts, we bring home $6500/month.
We live in an area where a 2 bedroom 1.5 bath townhome with 1800 sq/ft goes for $250k or less.
I bring this up simply to say: Even people living outside the major metros, in their mid 20's, can scratch $3000 a month for that type of mortgage.
Not saying it's a good use of money, but the problem is that too many people could afford to do it with easy credit AND with the prospect of nothing wrong happening.
I thought the "traditional" thought process was to have no more than 28% of take home pay in the total mortgage payment. With that logic, that would mean something like a $10700 monthly take home, and just for conversation sake that would mean (I am guessing) a gross pay of $14200 monthly (172000 yearly).
And that is assuming that taxes and insurance are in that $3000 montly payment.
I would really not want to have a $3000 mortgage with only $6500 in take home pay a month. Maybe that is just me.
With a front ratio of 29% (standard is somewhere between 27 and 30%), your max payment on a monthly income of $6500 would be $1885. That would include the mortgage payment along with insurance and property taxes.
Six months ago you might have found a lender willing to allow a front ratio of 46% (3000/6500), but not any more. Especially when it comes to FHA loans.
I also have a friend who just graduated, he landed a job at the OCC, as an accountant and he starts at 55k with all the Federal Employee benefits. So two kids 23yo fresh out of no name schools can be making 110k combined if they know what they're doing.
Are you familiar with comparable sales? Looks like the going rate for a 900-1000 sqf 2 bed 1 bath condo within a couple blocks of this one range from 485-540K over the last 6 months (6 sales). Seems to me they are already at the low end of this range. Perhaps their realtor knows the market better than you do?
Exactly.
Any major metropolitan area CENTER is not going to see anywhere near the depressed prices of other markets.
Maybe people will start "getting it" when we have econobloggers who are even slightly informed about the major economic issues of the day.
Megan picked a bad exemplar. This is arguably the poshest neighborhood in Washington (some consider it tonier than Georgetown) and the density of "Best Addresses in Washington" buildings is high within 3-4 blocks of this place. In short, it's probably worth the money. I live in Columbia Heights and you can easily knock $100k off the price for an equivalent apartment (less than 1 mile away) but you don't have the advantage of living in a neighborhood of ambassadorial residences (though I do live around the corner from the Swiss embassy). Another route to go is auctions. I got a great deal at a foreclosure auction last November after selling in 2006 and sitting out the market for 2 years but you'll never find any deal on a Kalorama apartment - even at auction. She needs to look further east or in upper NW.
Obama and the big plans for government are in town. Don't expect D.C area prices to fall much more.
My thoughts exactly. While the rest of the country slumps, I am guessing DC will be experiencing quite a boom. Radley Balko took up the issue here.
Calvin,
"I also meant to add up top. $3,000 for a mortgage? How many people can afford that? I wish I made that in a month. Much less afford that kind of mortgage."
In Boston a Nurse Practioner and a Cop could easily make 250k a year combined with a little OT. It's not that hard for a professional couple with decent jobs.
In Washington D.C. a forensic accountant for the FBI and a manager in the Interior Department could be making nearly 200k without too much trouble.
So two incomes plus overtime in order to afford a 1000 sf home? In what universe does this make sense?
DC is a different market, but here in LA (or at least in the outer burbs) we have this: http://www.latimes.com/business/la-fi-cheaphomes10-2009jun10,0,4802553.story
Prices are cheaper, in nominal dollars, than they were 20 years ago.
Isn't the DC housing market going to be a little strange no matter what? You've got no new construction in the District, and no real economic downturn (indeed, the gov't is having a banner year by all accounts)
There are a TON of new buildings in the NW district, a number of them in Columbia Heights, one neighborhood over from Kalorama (and more convenient to metro). Many of them can't form homeowner's associations because they have too many unsold units. The condo across the street from me (I live about 1.5 miles from the listing building) has sold 27 of its 118 units, and is about to be taken over by the lenders.
I suspect that the example home isn't really on the market. Realty track shows 398 new foreclosures filed in DC for April. So long as foreclosure sales are high, you're going to see downward pricing pressure. California and Florida enacted moratoria on foreclosure, Forida's was 45 days and California's, lasting for six months, expired in April. We can't return to a normal marketplace until we resolve these foreclosures. If I were seriously in the market, I would be looking at these properties, with the idea that I could get a fixer-upper at a very good price and remodel later, particularly if I were handy and could do a lot of the work myself. So, Megan, how are you or your friend with a hammer?
398 foreclosures in DC, whose population is 600,000. That's not higher than the national average. You don't know what you're talking about. Shocking.
I suspect the bottom will not be national, but regional; different times for different areas.
Two years ago, condos in Portland, ME were unavailable for less then around 200,000. Now, there are loads of listings for the low 100's. Lots of houses in the 200,000 range, which would just buy junk houses in bad locations two years ago. My nephew just closed a short sale -- only been at it since just before Easter -- so it happened fast. So I'm guessing we're looking at the bottom there. In my town, two hours to the northwest, there's a glut of second homes driving prices down fast. A house that sold for mid-300's five years ago sits vacant with a price 100K lower.
And what bottom looks like for individual owners may vary; some people need to get what money out they can, and will negotiate. Others cannot afford to take the loss, and are truly stuck.
And a few may already be on the upswing.
But the market that's going to keep dropping for a while is commercial real estate. Lot of empty store fronts; lot of struggling small businesses. And a boom in growth of vacant industrial space and big-box retail space; at least to my eye.
But the real take-away from the housing bubble is the importance of weighing your life's portability vs. its roots. There's significant value to being able to relocate to a job right now; value that's been unappreciated in our struggle for the American Dream of home ownership for all.
Andrew J. Oswald at the University of Warwick published a paper, "The Housing Market and Europe's Unemployment" (pdf), where he posits a link between high rates of home ownership and high rates of unemployment.
Speaking anecdotally, one of my coworkers could not sell his home near his old job in Pennsylvania, and after a year of living in Virginia, both paying local rent and his mortgage, he had to move back into his home. Fortunately, he and his manager worked out an arrangement that enables him to work remotely from a company office in Maryland, coming down to Virginia only as needed, so he did not have to quit his job.The Atlantic had an article back in 2007 (link) that noted how government tax incentives distort the housing market to favor home ownership, and also talks about how Britain managed to abolish their mortgage interest deduction without collapsing their housing market.
And, a half million dollars for a less than 1000 squarefoot apartment? That is hilarious, and tells you everything you really need to know about the bubble.
It tells me how ignorant you are of urban living, where those kind of prices are common. Try to find that deal in downtown NYC. There are plenty of reasons people choose to live in such expensive dwellings and none of them have anything to do with bubbles.
Congratulations, YW, you're third on my list of people who know crap. Slow day at work today, for me.
Jeez, Toast, it took you that long to put Yancey on a list?
Yancey, you aren't trying nearly hard enough here.
Not bubbles, per se, but it does have a lot to do with zoning and land-use restrictions. In a competitive housing market the house prices in both DC and downtown NYC would be much, much lower than currently. There are several pieces of evidence to judge that most of the cost of housing in central cities is due to permitting costs, not land, including comparing the price of houses on larger lots to two smaller lots with the right to build two houses. Or do you completely disagree with the research of Harvard's Ed Glaeser? Does he not "know crap" either?
Nutella -
I don't think he was expressing ignorance of the fact. I think he was expressing outrage at the concept.
Perhaps you need to re-evaluate a world in which you need a combined salary of roughly 3-4 times the median national income of the U.S. in order to afford a one bedroom, one bathroom abode in a dirty, polluted area with incredibly high population density (i'm basing the dirty, polluted comment off of my experiences in LA, NY, Boston, Philly, and a few other locations, but recognize that San Diego at least is alot cleaner overall).
I don't understand why people CHOOSE to live in such expensive dwellings when they have the means to live elsewhere. I have seen people talk themselves into why it's a good idea, I just haven't seen the practicality of it.
Joe
Joe - not decrying your desire to live in some lifeless suburb in which a quart of milk requires a ride in the car through endless look-alike houses in which most of the people couldn't tell you the neighbor's last name. I'm sure you gather from this why some of us might like to live a short subway ride away from work or a short walk away from great restaurants and bars. Yes, I pay extra for all that and it's worth every cent.
Having lived through the oil bust, I expect that housing prices will not bottom out until 6 months or more after the employment situation in an area stabilizes. Prices in Texas dropped quite a bit - we bought our house in a very nice central location (big houses, big trees, good schools, minutes from museums, sports, downtown and other employment centers) for about 30% below original listing. The seller was the owner of a real estate agency and knew that our offer (15% below asking) was realistic and jumped at it, as he had our house (empty) and his own up for sale. Some new developments saw houses drop 30% or more. Some sat 20-30% complete for years while the builder went bankrupt and the RTC took over the bank that financed the builder and held his paper. Some of those developements didn't start building again for 5+ years. After 12 years we sold at a good profit, as we had more house than we needed.
It's gonna be brutal.
Yancey,
That would be 1/2 price in my neck of the woods.
My realtor friend keeps saying "Good thing the prices aren't falling - nothing has sold in 6 months - but, at least prices aren't falling."
Ummm yeh....
LOL!
No they don't think it has appreciated. They are just trying to get out for what they paid 4 years ago because they still have to pay closing costs and real estate commission out of their proceeds.
We've been nosing around in Westchester (and less seriously in Brooklyn) for about a year, and we are endlessly amused by the brokers touting the gobsmacking 2-5% price decreases. I know rather a lot of people who are also half-looking, but the few who bother making offers seem to bid 30% or more below the asking price. I'd guess NY decreases are lagging most other large markets by a year to 18 months.
A very large portion of what's on the market around here appears to have asking prices of roughly what the buyers paid in 2004-5. I'd wager most of them mortgaged themselves to the neck to buy a starter house they've now outgrown, but in which they are now stuck for the foreseeable future. Even if they have to move they probably can't imagine doing a short sale and losing not just the phantom appreciation but a down payment they'd spent years saving. I sympathize - their supposedly sure-fire dream of building equity is dead, and will probably stay dead for quite some time.
My personal guess, in the NYC-metro area at least, is that prices will continue to decline steeply through early 2010, and then level out (still declining, but only at a 2-3% per year rate) for the next 2-3 years, before basically staying flat for the next half decade. (This is based on absolutely nothing other than gut, and my assumption that (i) inflation will rise but not to 1970s levels, and (ii) taxes in NY will rise substantially, and sooner rather than later.)
There is a very simple reason for the small change in price. It has to do with days on market. By making a small change in price, the broker can reset the clock on the MLS. It makes it look like a fresh listing.
They should keep track of both the original sale date, and the days since last price change. Or maybe just not keep track of the dates at all since it seems to be an issue.
They should remember to update the photos, too, because the pictures with deep snow or colorful fall trees don't look very fresh.
Tree,
I don't understand why people CHOOSE to live in such expensive dwellings when they have the means to live elsewhere.
Traffic - I went looking for a new job and the two offers I got - one was 2.2 miles from home the other was 3 blocks. I work with people who live in much much larger homes in the suburbs/country that LITERALLY spend 4 hours a day stuck in traffic.
I bought a 3600 sq. ft. house out in the boondocks of Arizona for 192k. A similar house on the same street is selling for 130k now. It's about a 45min commute to work when the traffic is light.
I'm not really upset I bought the house though. My mortgage payment is $800/month and I'll never need a bigger home.
Being Washington, real estate pricing may operate in the same fashion as federal spending where a 'cut' is not a 'cut' in the absolute sense
but a cut from a projected growth line. Thus a modest cut in a budget or housing price can be said to be 'draconian' if we compare it to the forecast budget or housing price.
Yup. Just like mortgages were given out on projected value, not real value.
But there's an old saying: don't count your chickens before they hatch.
And another old saying: what goes up must come down.
We seemed to have forgotten both.
Anecdote + personal bias = unreliable.
Megan -
I will sell my house in NC (under contract) in the next week at a handsome profit over the purchase price in 2003. :P
Cheers always,
Me
Meghan,
While the residential real estate bubble may be on the way out, the parking space bubble is just getting started. A space in my neighborhood just sold for a record $300,000.
http://www.boston.com/business/ticker/2009/06/beacon_hill_par.html
I remember parking spaces selling for several thousand when we lived in Brookline, 15 and more years ago. (Brookline has a ban on overnight parking on the street.)
A deeded space would also drive the cost of an apartment up substantially.
But it also bothered me that this policy's #1 impact was to cause bits of yard to be dug up and paved.
"There is a very simple reason for the small change in price. It has to do with days on market. By making a small change in price, the broker can reset the clock on the MLS. It makes it look like a fresh listing."
Agreed, though a lot of the listing web sites now show you a history of price changes. The really humorous part here, though, is that they BRAGGED about the price change. It's going to make people curious what the delta was.
People always cite the combined income of two-career couples, when both have either degrees or management jobs. If it takes two salaries like that to buy a one-bedroom that's too small for kids, something is drastically wrong. What's a one-earner household to do?
That said, Kalorama is notoriously pricy. Have you considered the up-and-coming parts of Northeast? Or (you'll hate this) the inner suburbs that are still on transit? There's a reason a lot of us move to those places.
There's nothing wrong with the fact that a one earner family with a modest income can't afford to live in a particular very expensive corner of the city. There are many less expensive neighborhoods in the city as well as the more distant suburbs.
I wonder whether it's a good idea to bet on continued gentrification in the current market. If you map foreclosures in DC, you'll see they are highly concentrated in marginal neighborhoods.
Cities (in particular, affluent enclaves of cities) are unrepresentative of the national housing market; DC is specifically unrepresentative. I won't bore everyone here with the reasons--you all know the reasons.
Megan -
One other reason housing prices in the D.C. Metro area haven't gone down as far as you would like them to: unemployment. I understand unemployment in the D.C. area is only around 5.6%, with the government sector growing of course. With such low unemployment compared to rest of the country and a growing population, how could prices go down much further?
http://washington.bizjournals.com/washington/stories/2009/06/01/daily63.html
Cheers.
. If it takes two salaries like that to buy a one-bedroom that's too small for kids, something is drastically wrong. What's a one-earner household to do?
One earner households won't be living in the nicest parts of the city, unless that one earner is doing very well financially. One earners will live in the suburbs and spend 4 hours a day on the beltway.
Is this not another example of the maestro's brilliance?
Permanent Income Hypothesis at work. People consume - and sell, might I add - based on what they believe their "permanent" income or "permanent" sales-value is.
Adjustments are sticky. And also very often cruel, I might add, since by the time you realize that you can no longer afford the new car, or that your house isn't going to sell for more than you bought it for... well, it's often too late. You've already saddled yourself with payments that you can't afford or, in this case, made a provisional offer on a house based on capital that you will never receive.
California is the poster-child of this at a large scale. That's a group of people who simply refused to believe that their Golden State wouldn't continue to bring in cash faster than they could spend it on their wonderful nirvana of social programs - for both legal citizens and "permanent visitors."
NYC has a $5 - $8B gap this year, and yet all you are hearing from them is "we'd better raise the sales tax."
Yeah, that'll work. Don't cut anywhere, even though spending on education has doubled but Johnny still can't read. Full steam ahead, for sure.
This is why libertarians and fiscal conservatives are scared. Unemployment is heading towards 10%, and we all see the signs that
a. We haven't hit the bottom,
b. The current administration's actions are moving the bottom lower,
c. Ditto with major state and city leaders, like NYS, NYC, CA, MI, etc. This also makes the overall bottom lower.
When California crashes in the next few months, which is inevitable at this point, then various welfare checks and many other payments are going to stop.
What happens then? Does Obama tell Geithner to write California a check, against an account that is already deeply in the red? The treasury, as we all know, is empty.
We just saw a tepid 10 year bond sale yesterday. Will China step up, yet again, to avert food riots in California? Will they still feel that 4% is the right interest rate to protect that investment?
An economic recovery requires an engine of recovery. That engine must be a market of some kind. Right now every market is paralyzed with denial, like Megan shows here, or with fear of Big Brother intervention, or fear of taxation, etc.
"When California crashes in the next few months, which is inevitable at this point, then various welfare checks and many other payments are going to stop."
That's how I know you're talking out your ass. All California would have to do to balance the budget is roll spending back to 2004 levels. It really wouldn't be the end of the world.
http://www.latimes.com/news/local/la-me-arnold-budget12-2009jun12,0,5134908.story
Second to last paragraph.
If you really believe that California's legislature is going to accept a share-the-pain "soft landing" then you've been out in the sun too long. Denial and log rolling is all these people know. They will play that game right until the well runs dry, and then shift to the only other game they know: the blame game.
Schwarznegger isn't wrong here. If they don't get a taste of what's coming, they'll never wake up. And even if they do, I'm betting that they can't wake up.
The only place I'm talking from is facts and reports from the Press.
Where, perchance, are you listening from?
DC is just crawling with young lawyers making several hundred $k/yr and they all want to live in close in cool neighborhoods close to nightlife and work (for running into the office for all that weekend/latenight work)disposal. Similar to NYC and the Wall Street crowd. The prices may seem insane to people in other places, but it is par for the course in dense cities like DC, NYC, Chicago, SF.
That said, $500k for an apt. in Adams Morgan without parking? No thanks.
For what it's worth, Zillow estimates that this condo is worth $418k ($372k-459K). Although the machine is not always right (and indeed sometimes it misses something critical, like a house update or the like), I think there's a rebuttable presumption that a price above Zillow's high-end margin is too high.
Zillow has issues in DC (and perhaps elsewhere). It seems to use too large a radius in some instances, so comps for this apartment in Kalorama include some in Adams Morgan and Columbia heights.
$500K for a tiny condo that is less than 1000 sq ft, has no central ac/heat, is in an 82 year old building (not old enough to be historically interesting, not new enough to have modern construction quality) and over $600/month condo association fees is absurd.
For those who make loads of money, and like living in concrete jungles, perhaps this is a good deal. But for those of us who don't make tons of money (which is most of us), some of the suburbs are still affordable, and they have amenities like square footage, a yard for the kids and pets to play in (rather than having to walk 6-10 blocks or more, dodging traffic, to get to the tiny pocket park that is the only green area in the neighborhood), and schools which actually succeed in educating the children rather than simply warehousing them.
DC hasn't had a reality check like the rest of the country because the federal government is not going to shrink during this administration, but some of the other big cities around the country are not out of the woods yet. California is only the first state to go over the side; expect for New York, New Jersey, Michigan and Massachusetts to follow in fairly short order.
Investing genius Peter Lynch wrote a wonderful book back in the '80s called "One Up On Wall Street" which a lot of people evidently need to pick up and read.
He talks about how to know when a market has truly hit bottom, and he says essentially that a market hasn't hit bottom until the conventional wisdom is to completely give up on it. Only then is the stage truly set for the market to come back. As long as there are still a large enough group of people claiming that "it has hit bottom," it hasn't really hit it yet.
[On the flip side, you know a market has hit a top when everyone is convinced that there's no possible way it can come down. Sound like a good description of the real estate market before the bubble burst? Anyone?]
Even a quick perusal of the comments here bear outs exactly what Lynch was saying. There are still far too many people trying to justify the current pricing of real estate to believe that it truly has hit one. Oh 'this neighborhood is different' they say. Sure. That's what they said in California a few years back. People will always want to move to California. Umm. Yeah. Not so much.
Every self-justifying reason in the world isn't going to change essential market dynamics - especially in light of the current economic situation:
1) Unemployment is still increasing which means more people are going to lose their homes. The GM and Chrysler bankruptcies - and the attendant daisy chain of layoffs - haven't even begun to work their way through the system.
2) Banks still hold an incredible amount of foreclosed property inventory which still hasn't hit the market.
3) There are lots of owners already behind on their mortgages who should be foreclosed upon, but banks aren't willing or able to take the writedowns on the property so they're holding off foreclosure until they clear some of their existing OREO inventory.
4) Interest rates are rising because of the obscene level of federal borrowing that the Democratic Congress and Obama administration have necessitated with their feckless spending. That's going to reduce the amount that the average household can afford to spend on a house by increasing the monthly payments.
5) Oil is still going up which is going to cause more layoffs and take larger portions out of the family budget for heating and transportation costs - again reducing the number of potential buyers and the amount they're going to be able to pay.
6) The prospect of higher taxes and higher household costs because of new government mandates and spending is inevitable unless the political dynamics change in Washington - which they won't until at least November 2010.
7) State and local governments are facing budget shortfalls as their revenue declines which is going to lead to either government layoffs or increased taxes - neither of which is a plus for the economy or for housing prices.
8) Continuing declines in prices of homes in outlying areas will continue to have a deflationary impact on prices in the center of urban areas as well. As homes in "Suburbia" become ridiculously cheap, the perceived value of living "downtown" declines as large numbers of potential buyers for urban properties wind up opting for larger homes and more land in the suburbs at significantly lower prices - thereby decreasing the number of buyers willing to bid up the prices on urban properties.
I could go on and on, but the reality is that there isn't a single reason to believe that the housing market is bottoming. Every single economic indicator points to an increase in financial pain for households across America. Combined with the demographic (Baby Boomers retiring with not enough people to buy the houses they're trying to downsize out of) and cultural (People are no longer willing or able to finance high-end lifestyles by constantly borrowing against their home equity: "Keeping Up With the Jones'" is no longer the order of the day) changes, only someone with their blinders on or a complete ignorance of economics could believe that we are anywhere close to seeing the end of the housing decline.
I know people will protest: 'But what about this blip or that blip of economic data?' That's exactly what they are: blips on the radar screen and certainly nothing approaching a definable pattern. Markets have been in free fall and need to pause to figurately 'catch their breath' every now and again. There has been absolutely zero confirming economic data to show a pattern of a base being established: just an occasional relief from free fall records.
Buy now if you want to. But as a cautionary lesson you should read the LA Times article from a couple of days ago where a young family bought a house in April for $175K because they believed people who told them the bottom was near. A comparable house in the same neighborhood sold in June for $130K. Think about how long it will take that family to earn back that $45K they just lost in the last 60 days and ask yourself if you have that kind of money to throw around. If the answer is no, then you know whether or not buying a house right now is a good idea.
After falling back to 2002/2003 prices nationally we are only now approaching fair value
See here
http://www.fundmymutualfund.com/2007/12/analysis-what-should-median-housing.html