WP: Home prices hit lowest level since April ’09 in double dip (except for DC area)

[Stew]

I just bought my house at 155k, while others that are similar layout and square footage are going for over 200k, I'm pretty excited about the investment opportunity it provides.

Same here. I paid 156k for 3000 finished sq feet on an acre for a nine year old house 4 bedroom 2.5 bath that can be converted to 3 full baths (3rd bathroom is in the basement and not fully finished.)

I was going to buy in 2004 because I had a fair amount of money saved and I didn't want to rent anymore. I was tired of throwing my money away each month, and the combination of a decent credit score and good saving habits was giving me fantasies of buying a great house in the NOVA area. Well, reality sobered me up very quickly. Even with the money I had saved, I was still being outbid on homes. every home in the NOVA area had like five people bidding on them, and some of these were junkers that needed work put into them to make them livable.

So after having my heart broken a couple times by last minute offers for more (and noone, or very few people at the time was offering cash) I spent 20K on a 14x75 foot trailer. It was embarressing for a twenty four year old to be the owner of a trailer, to say the least. While I owned my home, it was still a trailer and I hated living there every day for five years.

HOWEVER, when I sold my trailer in 2009 for 14k, I decided that it was all worth it. I got 14K back on my 20K investment, and five years living out of it. I put 6k down on my house at closing, and had money for all stainless steel appliances. When the 8K came that March (ammended to my 2008 taxes) I paid off my destination wedding.

The moral of that story is that holding off buying was the best move I have ever made. I would have been upside down buying when I origanally wanted to, and when I did decide to buy, banks were not really accepting offers without cash, and a lot of those deals for no money down but for higher prices, is what the banks were looking for back then. Now, getting a house without a cssh offer is a hard task. Every house I wanted to bid on had people willing to offer the bank more money if they didn't have to put any down, back in 2004. I suspect banks wont even entertain these offers today.

[THEREALTOR1]

Annual return on a house (from an investment standpoint) was 4%. At least thats what it was when I got into the biz. The fact that we saw that sort of increase on a weekly basis from 04 -07 will give anyone an indication as to the severe slope we climbed during those times.

IMO, the increase of banks releasing their foreclosure inventory into the market will actually begin the return of value to the housing industry. I don't know if anyone has tried to purchase a bank owned property recently, but if you have, you are probably well aware that they are in no hurry to accept your offer, and with the market flooded with buyers (all wanting to get the best deal on the next best foreclosure), buyers are starting to outbid one another at an increasingly high rate. Once these purchases start to come into play in appraisers cma's, the comps will slowly start to build, and it will slowly drag itself out of the mudpit. I would've never guessed that the banks beaurocratic red tap prolonged foreclosure purchase process would ever lead to the housing recovery, but now i'm not so damned sure that in the next few years they might just actually pull the whole damn thing off.

[Reic]

Annual return on a house (from an investment standpoint) was 4%. At least thats what it was when I got into the biz. The fact that we saw that sort of increase on a weekly basis from 04 -07 will give anyone an indication as to the severe slope we climbed during those times.

IMO, the increase of banks releasing their foreclosure inventory into the market will actually begin the return of value to the housing industry. I don't know if anyone has tried to purchase a bank owned property recently, but if you have, you are probably well aware that they are in no hurry to accept your offer, and with the market flooded with buyers (all wanting to get the best deal on the next best foreclosure), buyers are starting to outbid one another at an increasingly high rate. Once these purchases start to come into play in appraisers cma's, the comps will slowly start to build, and it will slowly drag itself out of the mudpit. I would've never guessed that the banks beaurocratic red tap prolonged foreclosure purchase process would ever lead to the housing recovery, but now i'm not so damned sure that in the next few years they might just actually pull the whole damn thing off.

Mine was a foreclosure, I got outbid on one and ended up getting a better house for the price from an investment standpoint with the house I did end up getting. I submitted an offer on a thursday, got a counter on friday, then had the counter ratified a week later. Maybe I got lucky, but it was pretty quick for me.

[THEREALTOR1]

Mine was a foreclosure, I got outbid on one and ended up getting a better house for the price from an investment standpoint with the house I did end up getting. I submitted an offer on a thursday, got a counter on friday, then had the counter ratified a week later. Maybe I got lucky, but it was pretty quick for me.

That is super lucky. I'm doing a loan for a couple right now (no longer a realtor, working in the lending side now), that has had an offer in on a house for 75 days without a response yet from this lender (supposedly the lender of America) Listing agent is still accepting bids while waiting on the bank to even look at my clients bid, which was 15% more than the asking price, because there were already 2 bids in place in front of them. That's the kinda stories i'm hearing everyday from the people i work with and talk to, of course i'm sure it differs from region to region.

[PeterMP]

You guys never really had the bubble though, did you? Housing prices in Dallas rose less than 10 percent from 2001-2007. Housing prices in places like Phoenix and Las Vegas went up over 80% during that time. That's why those places got killed.

TX was pretty safe from their own recession in the 1980s and the S&L debacle caused land prices to fall in TX in years when land was doing okay in most of the rest of the country. That local affect seemed to protect them from the more recent bubble.

In Europe, you see the something similar. German land prices went down after the reunification. They then didn't have much of a bubble recently, while much of Europe did.

[MissU28]

I'm hoping prices are low- I'm looking to buy when I get back to VA!

[PeterMP]

I think we are close to being where we need to be:

http://narrowtranche.blogspot.com/2009/10/stabilization-of-us-housing-prices.html

http://www.calculatedriskblog.com/2009/05/house-prices-real-prices-price-to-rent.html

I'd have two stipulations about this:

1. The market can stay irrational longer than you can stay solvent. Just because things are "properly valued" doesn't mean that the rest of the world is going to see that any time soon. Property might be "under valued" for the next 30 years.

2. I'm also a little concerned that median income might fall more, depending on what happens with the recession, which then could expectedly drive down home prices even more.

[deejaydana]

I spent the past 3-4 months looking for a new place with the (future) wifey and man, what a hair-pulling and completely frustrating experience it was. We would find short sales left and right, make offers and then....nothing. The banks would rather just sit on their inventory apparently. I have near perfect credit, next to no debt, solid employment history and dual incomes. It still apparently wasn't enough. I don't think we're still near a bottom with so much reputed shadow inventory still yet to be accounted for and thrown back onto the market. Not a fun experience at all and one heck of a lot trickier then the last time I bought, which was 10 years ago. The equation seems simple enough to me, it works like this: no jobs? no solid housing market.

[Stew]

I waited on a shortsale for seven months before giving up on it. Absolutely gut wrenching. You fall in love with a place, offer more then the bank is asking, with cash, and then you dont even hear a response. Its ok, that house stayed on the market a year after i ended up purchasing. I made the right decision by bailing on that house. I also was motivated to look elsewhere because the Obama tax credit for first time home buyers was getting closer and I wanted to make sure I was able to close on whatever house I chose, with ample time.

[techboy]

I was going to buy in 2004 because I had a fair amount of money saved and I didn't want to rent anymore. I was tired of throwing my money away each month, and the combination of a decent credit score and good saving habits was giving me fantasies of buying a great house in the NOVA area.

This is often the biggest mistake in thinking that people make. Renting doesn't mean you're throwing your money away... you're getting something for it. A place to live.

The cost of buying, on the other hand, is often greatly underestimated, and the investment value overestimated. Many of the numbers I've seen run (with normal markets) take years and years for owning to pull ahead of renting.

The best reason to buy a house is the desire to own a house. The value lies in the freedom of owning the property (as much as the HOA allows, anyway) and the stability of not being held hostage to the whims of the owner.

Annual return on a house (from an investment standpoint) was 4%.

Before inflation, that sounds close to right. Of course, after inflation, that becomes something like 0 to 1%, or barely any return at all in real terms, which is what the research shows is what one gets, over the very long term. This Very, Very Old House talks about a study done in Amsterdam, where the records go back 400 years:

That is to say, where everyone from your wise old uncle to the broker who sold you your house holds it as gospel that real estate is one of the best long-term investments, this longest of long-term indices suggests that, on the contrary, it sort of stinks. Between 1628 and 1973 (the period of Eichholtz's original study), real property values on the Herengracht — adjusted for inflation — went up a mere 0.2 percent per year, worse than the stingiest bank savings account. As Shiller wrote in his analysis of the Herengracht index, "Real home prices did roughly double, but took nearly 350 years to do so."

Studies in the U.S. reveal much the same thing:

This sort of thing isn't surprising to Shiller, who says he believes that the notion that real estate is a terrific investment comes in part from the long-term nature of most purchases. You know that your grandmother paid $15,000 for her house in 1951, and it's now worth $250,000. That sounds grand, but most of the increase is simply matching inflation. An analysis Shiller made of home prices in the U.S. going back to 1890 showed an average annual increase of a meager 0.4 percent. By way of contrast, Jeremy J. Siegel of the Wharton School of Business has calculated that over a 200-year period, the stock market had an average annual real rate of return of 6.8 percent. It's only in recent years, Shiller says, that huge increases in real-estate prices have become the norm and that people have come to expect them.

Buying a house just isn't the fantastic investment a lot of people think it is, and when you really think about it, it makes sense. A house is not a company, or something that creates value in an economic sense. It's more like a commodity, and commodities also basically track inflation over the very long term.

[Stew]

This is often the biggest mistake in thinking that people make. Renting doesn't mean you're throwing your money away... you're getting something for it. A place to live.

The cost of buying, on the other hand, is often greatly underestimated, and the investment value overestimated. Many of the numbers I've seen run (with normal markets) take years and years for owning to pull ahead of renting.

The best reason to buy a house is the desire to own a house. The value lies in the freedom of owning the property (as much as the HOA allows, anyway) and the stability of not being held hostage to the whims of the owner.

Before inflation, that sounds close to right. Of course, after inflation, that becomes something like 0 to 1%, or barely any return at all in real terms, which is what the research shows is what one gets, over the very long term. This Very, Very Old House talks about a study done in Amsterdam, where the records go back 400 years:

Studies in the U.S. reveal much the same thing:

Buying a house just isn't the fantastic investment a lot of people think it is, and when you really think about it, it makes sense. A house is not a company, or something that creates value in an economic sense. It's more like a commodity, and commodities also basically track inflation over the very long term.

I agree with most of what you said. `However, you may get a place to live when you rent, but you get no return on your monthly investment at the end. 5 years renting, I get zero back when Im ready to move. 5 years of owning and I get all almost all the money I invested back, plus five years of living, plus living in the trailer i purchased bought me more time to save money. When I was ready to move and sell my trailer, I already had money in the bank from saving for the past five years, and was making more per year then five years ago.

The one stipulation I will comment on is this, when I went to sell my trailer, the Real Estate market was already taking a nose dive. What was odd was that even though the market was dying, the market on modulars and trailers was on the rise. Especially in Northern Virginia. Not all modulars and trailers. The really expensive trailers were in a worse spot then the housing market because not only were they expensive, they were still modulars, with no basement, on a plot of land that may require rent, etc. I mean, some of these modulars were nice. Hardwood throughout, Anderson windows, the works... but they were in questionable neighborhoods and the pad rental was a couple hundred a month on top of any mortgage payment. My trailer was in the "goldilocks zone" of the market for trailers. It was nice, but not too big or expensive It was clean, had a fenced in yard, and wasnt very old. I had a lot fo suiters, multiple bids, and I got to set the move in date after I moved out..... Im rambling. Point is, if I would have rented, then five years later Id be in a different place. I think purchasing, even if it was a compromise initially, really benefitted me in the end.

[chipwhich]

I agree with most of what you said. `However, you may get a place to live when you rent, but you get no return on your monthly investment at the end. 5 years renting, I get zero back when Im ready to move. 5 years of owning and I get all almost all the money I invested back, plus five years of living, plus living in the trailer i purchased bought me more time to save money. When I was ready to move and sell my trailer, I already had money in the bank from saving for the past five years, and was making more per year then five years ago.

The one stipulation I will comment on is this, when I went to sell my trailer, the Real Estate market was already taking a nose dive. What was odd was that even though the market was dying, the market on modulars and trailers was on the rise. Especially in Northern Virginia. Not all modulars and trailers. The really expensive trailers were in a worse spot then the housing market because not only were they expensive, they were still modulars, with no basement, on a plot of land that may require rent, etc. I mean, some of these modulars were nice. Hardwood throughout, Anderson windows, the works... but they were in questionable neighborhoods and the pad rental was a couple hundred a month on top of any mortgage payment. My trailer was in the "goldilocks zone" of the market for trailers. It was nice, but not too big or expensive It was clean, had a fenced in yard, and wasnt very old. I had a lot fo suiters, multiple bids, and I got to set the move in date after I moved out..... Im rambling. Point is, if I would have rented, then five years later Id be in a different place. I think purchasing, even if it was a compromise initially, really benefitted me in the end.

Well there are a lot of people who purchased in the last 5 years who would disagree the will get their money back. In fact, many are in negative equity.

Anyone who thinks there wont be a price adjustment in housing in MD/DC/VA areas is kidding themselves.

Rates will rise. Houses will be unaffordable. Prices will come down.

We are in for another correction in this area.

[Hubbs]

Or they bankrupt us :pfft:

I warned ya the effort to inflate the prices would fail.

Of course it would. Re-inflation of an unsustainable price rise based on consumer debt is a laughable concept. Just ask Japan.

But that's what we've been trying for the past three years!

(Not a shot at Obama, by the way. If Bush, Paulson, and identical-Bernanke had been running the show up until now, we would have seen more or less the same thing.)

[Fergasun]

Who's ready for another bank bailout!

[Burgold]

Well there are a lot of people who purchased in the last 5 years who would disagree the will get their money back. In fact, many are in negative equity.

Anyone who thinks there wont be a price adjustment in housing in MD/DC/VA areas is kidding themselves.

Rates will rise. Houses will be unaffordable. Prices will come down.

We are in for another correction in this area.

Well, even if you sell at a loss, you'd still be getting more money then when you left your apartment. Besides, my mortgage for my house was lower then a lot of people's rent on a much smaller place.

[Stew]

Well there are a lot of people who purchased in the last 5 years who would disagree the will get their money back. In fact, many are in negative equity.

Anyone who thinks there wont be a price adjustment in housing in MD/DC/VA areas is kidding themselves.

Rates will rise. Houses will be unaffordable. Prices will come down.

We are in for another correction in this area.

I agree. Like I said, I was in a unique situation where the County I lived in drove the price of my trailer up (proximity to DC, NOVA) along with the affordability of it and the type of home buyer bidding on the house. It turned out to be a huge gamble that i didnt really realize in 2004, that ended up paying off by blind luck. Most people trying to sell homes to make their money back wont be successful. I was part of the perfect **** storm, but it def worked in my favor. I was never looking to profit off of the trailer when i was 24, I just wanted to get something back when I decided to move out. I had no way of knowing Id get the majority of what I spent back. However compromising and buying cheap when I was young instead of renting turned out to be a solid investment and decision.

[Skinz4Life12]

I just bought my house at 155k, while others that are similar layout and square footage are going for over 200k, I'm pretty excited about the investment opportunity it provides.

Damn, you got an entire house for 155k? That makes me jealous. You would be hard pressed to buy a box for 155k in Arlington/DC

[Popeman38]

Buying a house just isn't the fantastic investment a lot of people think it is, and when you really think about it, it makes sense. A house is not a company, or something that creates value in an economic sense. It's more like a commodity, and commodities also basically track inflation over the very long term.

You can say this all you want. But for generations, Americans have been purchasing homes, staying there for a decade, then upgrading. This upgrade usually results in a smaller mortgage payment because of the large down payment afforded when you sell your house for 150% what you paid for it. You roll that cash infusion into a down payment, and your upgraded house is being paid off with a downgraded mortgage. THAT is what people were buying into.

[LD0506]

The problem for years has been people playing RealEstate Roulette- overpaying with the certain knowledge that some sucker would overpay even more in a couple of years. I am hardpressed to muster up a lot of sympathy for those that gambled this way and lost. A lot of people worked very hard to not see a crash coming.

This is, and has been for a year or more, a great time to buy a house to be a house and a home. If you think that mystically magically you're going to see a return of the bubble days and that house will skyrocket on the market, then I have some nice swamp land for you to look at as well. OTOH we're coming up on a year since we settled, and the neighbors are great, the location works for our needs, we have a nice park a half a block away for boyzilla and his hellhound to play in, I am starting to get a return on all the work I've been doing and we're paying around $300/mo less than an apt was costing. I wouldn't trade any of that for mere cash.

For all the maneuverings the fed has tried this is still one of the bedrock elements of our economy that seems underaddressed. Home ownership pumps vast amounts into the economy, has a ripple effect that extends far beyond restocking Wall Street portfolios and stabilizes neighborhoods while reinvigorating local tax bases. They need to do what they can to ease the process of buying a home to metabolize the huge backlog of foreclosures and make a longterm investment in economic stability. That doesn't mean give mortgages away as door prizes like 2002, but at some point the banks need to accept that all those houses sitting empty are losing value, some drastically, and the longterm return on a paying mortgage more than offsets any reduction in initial asking price.

[Homercles82]

Fun real estate story.

My wife and I were looking at a house in a small subdivision in Sotsylvania. 3BR, 3BA, Garage, 0.73 acres for $135,000. We went to look at it yesterday, and the owner was home. He really isn't helping himself with selling it at all. He smokes inside, was smoking inside when we were there, has a ferret in the basement, and painted the house interior a nasty 1970's seafoam green.

The agent told us that it probably would not qualify for an RD loan because the floor was not fully carpeted in the basement. WTH?

Housing prices in my neck of the woods have come way down since last year. There are so many more nice homes under $150,000 now, which is right in our budget.

[techboy]

I agree with most of what you said. `However, you may get a place to live when you rent, but you get no return on your monthly investment at the end.

That's not true at all. When you rent, you get a place to live. This is a need. Does it bother you that you have nothing to show for your monthly food expenditure?

It is true that when you buy, you can get something back when you sell. Historically, that "something back" is about 0 to 1% annually in real terms. And that doesn't include all of the other expenses, like repairs and taxes and so on, that people don't consider when they're calculating these things.

You also paid a mortgage over that time, presumably, and you don't get that back. It's like rent in that sense.

In fact, you probably could have invested the principal, paid rent instead of mortgage, and beaten that 1% real.

You can say this all you want. But for generations, Americans have been purchasing homes, staying there for a decade, then upgrading. This upgrade usually results in a smaller mortgage payment because of the large down payment afforded when you sell your house for 150% what you paid for it.

Over individual periods of time, that might have been true. Over other periods of time, people actually lost money.

And most importantly, the longest term studies show that you get perhaps 1% a year real, if you're lucky, and that doesn't even include all the other expenses I just mentioned.

If you're getting 150%, it's almost certainly because of inflation. That's not a real return. (Though I will say that in cases of high inflation, a fixed rate mortgage is an advantage over renting).

People just don't do the analysis properly.

---------- Post added June-1st-2011 at 10:36 AM ----------

What I find really fascinating about that New York Times article, by the way, is not just the historical studies of home value. It was written before the real estate crash, and it's interesting to read the reasoning:

In the new edition, Shiller applies the same thinking to global real-estate prices and argues that the phenomenal increases of recent years — especially in places like New York, San Francisco, Sydney, London and Paris, but also more broadly — amount to another instance of irrational exuberance. Taking the long-range view, he says, led him to conclude that real-estate prices are destined to fall. "The data just are not there to support the idea that housing prices will continue to soar out of sight," he said.

Not everyone agrees with Shiller's irrational-exuberance thesis. "I just don't see it that way," said Richard Peach, a vice president at the Federal Reserve Bank of New York and an author of a study in 2005 that concluded that the sharp rise in home prices is in line with economic conditions — that it indicates not a skewed vision of reality but a strong economy. In fact, Peach says, in the past 20 years family buying power has grown faster than housing prices. "We sometimes wonder why home prices haven't increased much more, given the tremendous increase in the size of mortgage the average family can finance," he said.

Like-minded experts include Christopher Mayer of Columbia University and Joseph Gyourko and Todd Sinai of the Wharton School, who focus on what they call "superstar cities," places so desirable that they not only are not headed for a correction but they also can sustain "ever-increasing" prices compared with less-sought-after cities.

What such optimists are missing, Shiller says, is a long historical perspective. "The fundamentals that they cite in support of their reassuring assessments are surprisingly weak at explaining historical prices," he writes in a recent paper. Reading the data as an economist leads Shiller to conclude that the market will go south. In addition, he says that studying the erratic but rhythmic rising and falling of prices over time — in other words, acting more like a historian than an economist — reinforces this conclusion. "Looking at the Herengracht data is very instructive," he said to me, "because you can see 50-year intervals of growth, then it turns around. That's more realistic than the superstar-cities argument."

Piet Eichholtz says he doesn't think the long-term data alone necessarily suggest that a collapse is coming. But at the same time, like Shiller, he is skeptical of those who claim that property values can continue to increase ad infinitum. "Some people say economies in the past were very volatile and didn't have safeguards that we have now, so we aren't likely to experience any major crises that will causes prices to crash," he said. "I'm doubtful." Looking through the history of the Herengracht, he says, you can see similarly rosy assessments made over and over, which are then quashed by circumstances.

[HSW]

That's not true at all. When you rent, you get a place to live. This is a need. Does it bother you that you have nothing to show for your monthly food expenditure?

It is true that when you buy, you can get something back when you sell. Historically, that "something back" is about 0 to 1% annually in real terms. And that doesn't include all of the other expenses, like repairs and taxes and so on, that people don't consider when they're calculating these things.

You also paid a mortgage over that time, presumably, and you don't get that back. It's like rent in that sense.

In fact, you probably could have invested the principal, paid rent instead of mortgage, and beaten that 1% real.

Over individual periods of time, that might have been true. Over other periods of time, people actually lost money.

And most importantly, the longest term studies show that you get perhaps 1% a year real, if you're lucky, and that doesn't even include all the other expenses I just mentioned.

If you're getting 150%, it's almost certainly because of inflation. That's not a real return. (Though I will say that in cases of high inflation, a fixed rate mortgage is an advantage over renting).

People just don't do the analysis properly.

The tax break on the mortgage interest is the single biggest reason that home ownership is a better deal than renting. It has nothing to do with getting a return when you sell. How could you not even mention the tax deduction?

[The Evil Genius]

Why the IRS only allows people to take credit for losses on investment property sales and not personal residence sales, I will never know.

It seems like the rules encourage people to walk away from homes that are underwater - thus hurting the rest of us who are underwater but fulfilling our ends of the loans.

[Busch1724]

The tax break on the mortgage interest is the single biggest reason that home ownership is a better deal than renting. It has nothing to do with getting a return when you sell. How could you not even mention the tax deduction?

That tax deduction is more than likely soon to end with the next Federal budget.

[HSW]

That tax deduction is more than likely soon to end with the next Federal budget.

I doubt that will pass. At least not with the elections coming up. At this point they are just throwing boogers on the wall and seeing what sticks.

---------- Post added June-1st-2011 at 11:28 AM ----------

Why the IRS only allows people to take credit for losses on investment property sales and not personal residence sales, I will never know.

It seems like the rules encourage people to walk away from homes that are underwater - thus hurting the rest of us who are underwater but fulfilling our ends of the loans.

The people who walk away take a huge credit hit. Not as bad as a foreclosure but still a huge hit. They are definitely not walking away without any damage.