Looking at activity in Logan Circle, we can see the surge in condo conversions that began in 1998 and peaked in 2004. The number of sales in November of 2008 is the same as the number sold in November of 2000. The percentage of listings sold has dropped significantly from 2006 to 2008. Unfortunately, we cannot obtain percentage of listings sold data prior to 2006 (at least not from any reliable source). Whether we have reached a floor in activity in Logan for the time being will become clearer in the first quarter of 2009. On a positive note, the average sales price in this zip code for November of 2008 was up over the average for 2007; $564,000 v. $518,000.
1995: 4 sold
1996: 3 sold
1997: 1 sold
1998: 12 sold
1999: 14 sold
2000: 15 sold
2001: 17 sold
2002: 18 sold
2003: 18 sold
2004: 31 sold
2005: 24 sold
2006: 21 sold out of 69 active listings (30%)
2007: 20 sold out of 100 active listings ((20%)
2008: 15 sold out of 81 active listings (18%)
There are currently 94 active listings in this zip code.
Sunday, December 28, 2008
Wednesday, December 24, 2008
Look at the trend of Novembers past:
When I read the headline in the Washington Post this morning about plunging real estate sales in November, I decided to do some research. I looked at sales in November in zip code 20009 in the District of Columbia going back to 1995. I looked at the number of homes sold in that month in each year between 1995 and 2008. I wanted to get a sense of what "normal" might be for this very specific geographic location. In future posts, I will look at other zip codes and do the same thing to give us a sense of where we are on a continuum. Here is what I found for zip 20009:
Number of homes sold in November
1995: 39
1996: 35
1997: 52
1998: 56
1999: 88
2000: 74
2001: 77
2002: 90
2003: 89
2004: 116
2005: 89
2006: 76
2007: 64
2008: 39
It would appear, based on the 14-year trend represented by this data, that we could be at the low point for numbers of homes sold. The average over these 14 years is about 70 homes sold in the month of November. Based on the historical behavior of this market, buyers today can expect a doubling of demand over a 2 to 5-year period for the home they buy today. That much increase in demand typically means a significant increase in value.
Number of homes sold in November
1995: 39
1996: 35
1997: 52
1998: 56
1999: 88
2000: 74
2001: 77
2002: 90
2003: 89
2004: 116
2005: 89
2006: 76
2007: 64
2008: 39
It would appear, based on the 14-year trend represented by this data, that we could be at the low point for numbers of homes sold. The average over these 14 years is about 70 homes sold in the month of November. Based on the historical behavior of this market, buyers today can expect a doubling of demand over a 2 to 5-year period for the home they buy today. That much increase in demand typically means a significant increase in value.
Monday, December 22, 2008
We are talking low...
Mortgage rates down at 4.5% fixed? Are you kidding me? If you qualify, and if you have equity (or are contributing equity in a purchase), you can buy a home at unbelievably low rates. If you are in a position to take advantage of this, you are set for life.
Tuesday, December 16, 2008
Lemmings are small animals that follow each other blindly off a cliff to their deaths
Why is it that popular media are such lemmings? Maybe I should not start out a post that way, but I get so annoyed by the lack of analysis and thoughtful commentary out there about almost any topic. Of course, my topic is real estate. Frenzy. Bubble. Meltdown. Blah, blah, blah. Yes, a lot of people have lost money in or around homes, mortgages, financial derivatives, etc. But mostly they lost money because they made bad decisions, bought things they couldn't afford, sold (or bought) investments that were extremely risky or some other version of believing that things that were too good to be true were actually true. That rarely happens.
If you buy a house THAT YOU CAN AFFORD at the market price and live in it for a few years, a decade if possible, you will own something worth more than you originally paid for it. A house is not a liquid asset; not something that should be bought one day and sold the next day, or even the next year. If someone sold you on the wisdom of "flip this house," that's an indication that your thinking needs to be re-thought.
I have been buying real estate since the late 1980's. First just to live in and later for a living. So far, I've only sold 4 properties, each one for substantially more than I paid for it (including improvements). Two of those properties I sold were homes I lived in and two were investment properties. Real estate investing is not for everyone, but living in real estate is pretty much for everyone. In general, one should tune out the media and focus on very fundamental questions: do I need to live somewhere? where would I like to live? do I think I will live there for at least five years? what can I afford each month in a mortgage payment?
If you are going to be around for a few years, and you can find something you like at a monthly payment you can afford, buy it and forget about it. I did that in 1999: $450,000 for a row house in Dupont Circle. My next door neighbor's house (same size and condition) sold earlier this year for $1,350,000.
If you buy a house THAT YOU CAN AFFORD at the market price and live in it for a few years, a decade if possible, you will own something worth more than you originally paid for it. A house is not a liquid asset; not something that should be bought one day and sold the next day, or even the next year. If someone sold you on the wisdom of "flip this house," that's an indication that your thinking needs to be re-thought.
I have been buying real estate since the late 1980's. First just to live in and later for a living. So far, I've only sold 4 properties, each one for substantially more than I paid for it (including improvements). Two of those properties I sold were homes I lived in and two were investment properties. Real estate investing is not for everyone, but living in real estate is pretty much for everyone. In general, one should tune out the media and focus on very fundamental questions: do I need to live somewhere? where would I like to live? do I think I will live there for at least five years? what can I afford each month in a mortgage payment?
If you are going to be around for a few years, and you can find something you like at a monthly payment you can afford, buy it and forget about it. I did that in 1999: $450,000 for a row house in Dupont Circle. My next door neighbor's house (same size and condition) sold earlier this year for $1,350,000.
Thursday, December 11, 2008
Are we in a golden age for first-time home buyers?
Maybe so, according the the New York Times. Click here for the article.
Sunday, December 7, 2008
Is the Washington Post right?
The Washington Post today says real estate is down 25%. It doesn't say since when. When I randomly searched in Arlington, VA, here is what I found: the property at 1619 Colonial Terrace North sold in September of 2005 for $450,000. It sold again in September of 2008 for $578,000, an increase of $128,000, which is UP 28%. That is an annual increase of 9.3%. Records show that the buyer in 2005 put up 10% of the purchase price: $45,000. Thus the annual cash on cash return for that buyer was 94% or 282% total. There is obviously a lot of real estate pain in the country, but blanket statements really misstate the facts.
Friday, December 5, 2008
Micro Analysis of Real Estate Values Reveals Flaws in Conventional Wisdom
When my kids were in elementary school at a posh private enclave in Washington, I was subjected to an annual ritual: reading through a dense and detailed analysis of the results of the standardized tests the kids’ had taken. The opaque report spent most of its time educating me on the performance of the “cohort” of which my child was a part. Though I could understand why the school cared about the performance of the group, I didn’t care about it at all. I cared only about the performance of MY CHILD.
In much the same way, an individual homeowner should be unconcerned about the performance of the national real estate market. A national average is irrelevant to any individual situation. In many neighborhoods in and around Washington, DC, one is hard pressed to find a negative result in analyzing actual results. Here are three examples of homes that sold in the last 90 days.
1405 21st Street, NW. This home, a six bedroom, 3 bathroom Victorian in Dupont Circle, sold in January of 2001 for $679,000. It was sold again “as is” in October of 2008 for $1,550,000. That is an increase of $871,000 over about eight years or $108,875 per year – not a bad tax-free income.
3263 N Street, NW. Located in Georgetown, this is a 6 bedroom, 6 bath, 2 half bath home that sold in March of 2003 for $2,900,000. It sold again in November of 2008 for $4,600,000. That is an increase of $1,700,000 over five and a half years or $309,090 per year – WOW, that’s a nice tax-free income.
5081 Little Falls Road. This home in Arlington, VA, is a six bedroom, five bath, one half bath home that sold in December of 2002 for $989,000. It sold again in October of 2008 for $1,245,000. That is an increase of $245,000 over about six years or $42,666 per year – a respectable part-time income.
Homeowners may have valued these homes higher on paper in the “bubble” years of 2005 and 2006, but they did not suffer actual losses when they sold in 2008. These examples prove that sellers in this market are more likely to book gains, not losses, when they have owned a property for at least five years.
If a purchaser bought at the absolute high mark for prices here, she might have to keep that property for five years or so before trying to sell at a profit. But that hardly justifies the schadenfreude of those gleefully saying “I told you so” about what they call the real estate bubble.
In much the same way, an individual homeowner should be unconcerned about the performance of the national real estate market. A national average is irrelevant to any individual situation. In many neighborhoods in and around Washington, DC, one is hard pressed to find a negative result in analyzing actual results. Here are three examples of homes that sold in the last 90 days.
1405 21st Street, NW. This home, a six bedroom, 3 bathroom Victorian in Dupont Circle, sold in January of 2001 for $679,000. It was sold again “as is” in October of 2008 for $1,550,000. That is an increase of $871,000 over about eight years or $108,875 per year – not a bad tax-free income.
3263 N Street, NW. Located in Georgetown, this is a 6 bedroom, 6 bath, 2 half bath home that sold in March of 2003 for $2,900,000. It sold again in November of 2008 for $4,600,000. That is an increase of $1,700,000 over five and a half years or $309,090 per year – WOW, that’s a nice tax-free income.
5081 Little Falls Road. This home in Arlington, VA, is a six bedroom, five bath, one half bath home that sold in December of 2002 for $989,000. It sold again in October of 2008 for $1,245,000. That is an increase of $245,000 over about six years or $42,666 per year – a respectable part-time income.
Homeowners may have valued these homes higher on paper in the “bubble” years of 2005 and 2006, but they did not suffer actual losses when they sold in 2008. These examples prove that sellers in this market are more likely to book gains, not losses, when they have owned a property for at least five years.
If a purchaser bought at the absolute high mark for prices here, she might have to keep that property for five years or so before trying to sell at a profit. But that hardly justifies the schadenfreude of those gleefully saying “I told you so” about what they call the real estate bubble.
How bad are things, really?
Yes, there’s a lot of bad news out there and, based on reading the papers, it seems like the sky may finally be falling on us here in the Nation’s Capital. This led us to take a closer look at what is going on in real estate.
As usual, when you dig a little deeper you learn some interesting facts. On average, home prices in the District of Columbia have actually increased over the previous year, ever so slightly, in each quarter of 2008. This is not true of the suburbs. But if you own real estate in the District of Columbia, you are actually holding steady through what one newspaper has described as the “nastiest recession in decades.”
And if you look at DC plus the inner suburbs of Arlington/Alexandria and close-in Montgomery County, the average sales price of a home is, even now, very close to its peak in the second quarter of 2006. The average price now is right at $540,000. The peak was around $560,000.
Trends are starting to look a little better, in fact. The inventory of homes on the market is declining, construction has slowed dramatically, interest rates are trending lower, job growth and in-migration in the region remain strong. These trends combine to project a balance in supply and demand for housing by the middle of next year in the District and a little later in the suburbs.
Let’s look at just one factor in the District: construction permits. The number of permits issued peaked in 2006 and has declined in 2008 to only 20% of what it was at its peak. This suggests that the District will soon face a shortage of housing v. demand. With a new administration coming to town, we should see that demand pick up by the middle of 2009. After all, a lot of the folks who move here for a political job never leave (Tom Daschle, Karl Rove, Al Haig, Colin Powell, etc). That means they’re not giving up their homes to the next wave.
So, if you own property, cheer up! If you don’t, buy something!
As usual, when you dig a little deeper you learn some interesting facts. On average, home prices in the District of Columbia have actually increased over the previous year, ever so slightly, in each quarter of 2008. This is not true of the suburbs. But if you own real estate in the District of Columbia, you are actually holding steady through what one newspaper has described as the “nastiest recession in decades.”
And if you look at DC plus the inner suburbs of Arlington/Alexandria and close-in Montgomery County, the average sales price of a home is, even now, very close to its peak in the second quarter of 2006. The average price now is right at $540,000. The peak was around $560,000.
Trends are starting to look a little better, in fact. The inventory of homes on the market is declining, construction has slowed dramatically, interest rates are trending lower, job growth and in-migration in the region remain strong. These trends combine to project a balance in supply and demand for housing by the middle of next year in the District and a little later in the suburbs.
Let’s look at just one factor in the District: construction permits. The number of permits issued peaked in 2006 and has declined in 2008 to only 20% of what it was at its peak. This suggests that the District will soon face a shortage of housing v. demand. With a new administration coming to town, we should see that demand pick up by the middle of 2009. After all, a lot of the folks who move here for a political job never leave (Tom Daschle, Karl Rove, Al Haig, Colin Powell, etc). That means they’re not giving up their homes to the next wave.
So, if you own property, cheer up! If you don’t, buy something!
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