One of my pet theories is that by the end of the decade, realtors will hold a similar position in the public's mind that junk bond traders did in the 1980s and trial lawyers did in the 1990s. If the real estate market really does crash, they will bear an enormous part of the blame for the way they shamelessly and irresponsibly helped inflate the bubble which began in the beginning of the decade ("Now is a great time to buy . . . or sell!").
So how bad is the housing situation? In my neck of the woods in Northern Virginia, I wouldn't say it's apocalyptic, but it's pretty bad. Stop on any corner in Old Town Alexandria and you can see three, four, or five For Sale signs, and once properties go on the market, they seem to be staying there for a long time. But elsewhere in the VA burbs, it's worse. To that end, check out this great site on the NoVa housing bubble. The percentage price reductions are kind of terrifying--lots of listing prices off 30+ percent from their prior sale prices 12 to 24 months ago.
Of course the NAR is already claiming that housing prices are totally going to recover in 2008!
8 hours ago
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I strenuously object to the term "junk bond trader." This is a trite, tired cliché, unworthy of any self-respecting journalist. What's next, Last? "Panamanian strongman"? How about "the powerful House Ways and Means Committee"?
Which is to say nothing of the term "junk." Excuse me, but no firm on Wall Street--NOT ONE--uses the term "junk bonds" in describing its operations. Sure, many firms have high-yield departments. But nobody--NOBODY--has a junk bond department.
Besides, the fact that high-yield securities have produced incredible return on investment for nearly twenty years should make it abundantly clear that this class isn't "junk." You may as well call the United States of America "junk." And I, for one, Sir, will not stand here and listen to you bad-mouth the United States of America!
Real estate agents, though--those guys are effin' criminals.
Their are dozens of homes in my town with for sale signs, yet remarkably, they are still building. The Connecticut shoreline might have appeal, but the job market is iffy, unless you are willing to commute to Fairfield County, Westchester County or Manhattan, and the cost is prohibitive.
Those kind of barriers to entry make the climate ripe for correction. I hope to weather the burst well enough to invest in the post bubble landscape, where most property will be undervalued, but I don't expect to be able to do so.
Speaking of NoVA, I rent just south of Old Town at the top of the Mount Vernon area of Fairfax County. My neighborhood is a tract of 300+ duplexes built in 1947. Decent neighborhood, but not great, and the June 2006 flood that wiped out 150 houses in the neighborhood wasn't as much fun as it sounds. But half-duplex houses here that sold for 95-100 in the late 1990s were selling for 350-400 two years ago. Now they're selling for 350 across the board.
So, yes, anyone who bought one of these houses at 400 two years ago and hoped to make a profit selling in two years is screwed. But only a fool would regard real estate as a short-term investment, so the separation of fools from money they merely expected to have doesn't bother me.
However, in no sane market would any of these structures be worth more than 250. Sixty year old GI housing built on a reclaimed creek bed? These are simply not very good structures anymore, but because they're duplexes you can't tear them down and start over, so you're really buying the structure, not the land. Sure, it's within walking distance of Metro, but surely that's not worth a $100,000 premium on a two-bedroom duplex that requires probably double the annual maintenance expense of a newer home?
My wife and I are looking to buy our first house soon, but the irrationality of the Northern Virginia housing market scares the daylights out of us. We've seen really nice houses in Del Ray selling for less than the sagging duplexes in our pedestrian-unfriendly, retal-less neighborhood. We're not afraid to put a lot of money at risk in a rational market, but the more we see the less confidence we have that real estate pricing has any connection with any kind of objectively provable reality.
I am a realtor and I work in Northern Virginia. I hope you are wrong...but you may not be.
I am not an economist and cannot tell you when the housing market will turn around. (Neither can they really.) I too am frustrated by the "positive" spin the NAR seems to put on everything.
Part of the problem is that the realtor always makes his/her money. It doesn't matter if your house sells for less than the last time. Your realtor is like your lawyer. They are going to get paid no matter what.
I am sure there were agents out there who were trying to get people to buy places they couldn't afford. I was not one of those. I don't totally blame the realtors. Too many people bought houses because they thought they could sell them next year for more money. They should have known better...of course if their realtor was telling them they could...then shame on the realtor.
There was an article in Forbes a year ago about the real estate market. The model they used to predict the price decline and a return to normal seems to be the one that is occurring. I don't know if they have updated their prediction.
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