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Friday, November 11, 2005

Northern Virginia townhomes selling $100K below July prices

I would be remiss if I didn't talk about this revealing article in the Washington Post. I've been following housing closely (here and here) and the article confirms that my gut instinct.

A person would have to be absolutely nuts to consider buying into the DC housing market right now.
Lynn Edmonds and his wife, Sebnem, could barely wait to sign on the dotted line back in May when they committed themselves to pay $796,000 for a three-floor townhouse under construction in Alexandria's Cameron Station.

But since May, the sales prices for the development have fallen -- and units like the one the Edmonds bought are now being sold for $699,900. The Edmonds are facing the prospect of a $100,000 loss in value before they even walk through the front door.

"We blithely stepped into the contract, thinking it would hold its value -- but that's not the case," said Edmonds, 46, a program analyst and Air Force veteran. "I feel so stupid putting myself into it. It's real estate -- I knew on a theoretical basis that it might go up and it might go down, but now I know it on a practical level."
But there's more. A realtor is excited that people are going to get hit with foreclosure when their interest-only mortgages adjust in two years.
His sister-in-law, Sandra Cabral, a real estate agent with Re/Max Pros in Kensington, puts it more succinctly: "He needs to get rid of it; it's an alligator eating all the money."

But she sees an upside to the situation, with good opportunities to make purchases cheaply in the future. "Within two or three years, there's going to be a whole lot of foreclosures, because with all of the interest-only loans, a whole lot of people don't realize that in two years their payments are going to go up."
If you are thinking about buying - don't. If you've already bought, then stay liquid and put yourself in a position to pay down some debt.

The ride is over.


Anonymous The Ghost of Tom Joad said...

My girlfriend and I "were" thinking about buying a condo or townhouse after our wedding. I told her last night that I was hearing the housing market was going to crash in this area. She told me "No way." I'm just hoping that in a year or two we can afford something and not get screwed on interest.

9:52 AM

Anonymous The Jaded JD said...

After doing a little early Christmas shopping the other day, I drove home from one of the malls west of Richmond. I happened to pass a plot of land on which I hunted rabbit about 15 years ago. The forest was cleared, the land graded, and a sign displayed a modest townhouse community. Below the architect's rendering was a sign, "Starting in the $340s!"

Those rabbits never tasted that good.

10:26 AM

Blogger Addison said...

Ghost - I congratulate you on your restraint.

I don't think you'll regret it.

And re interest rates: I was given advice by a friend that I think is dead on. If you buy when IR are high, then you won't get over-extended. People with a 5% ARM are screwed if mortgage rates go to 7%.

10:48 AM

Anonymous Anonymous said...

I don't see the realtor being EXCITED.

I see a Post journalist editorializing. The writer said she saw an upside. There is nothing in her quote to indicate that she thought this was an up side. She just states the facts that in a few years, there will be loads of foreclosures.

And there will be.

7:51 PM

Anonymous NOVA Scout said...

Addison: Interesting post, not only in its own right, but because of its implications for local government. My wife is a realtor and confirms that for certain housing sectors (including the lower end townhouses that you mention) there has been a definite softening of the market. Some time ago over at Bacon's Rebellion I pondered what would happen in booming jurisdictions like Prince William and Fairfax when the price trends reversed. Assuming assessed values follow suit (why would they not?) the ouch factor is going to be extreme. PW is a classic example. Connaughton and his Board have lowered taxes aggressively over the almost six years he's been Chairman and has forced Fairfax to follow suit. Ironically, the booming home values have given political opponents (most notably Bolling, but also a small but loud group of PW homeowners) a superficially slick way to argue that the guy actually raised taxes, since the lower tax rates were applied to higher market values. The annual tax cuts never seemed to quite keep pace with the zooming market values, at least for some owners. I don't think many people of any intelligence bought the argument, but it was good enough to have political impact at least within the Republican primary context. What happens now if assessed values drop? Assuming all prudent economies have been effected, local governments in fast-growing jurisdictions may have to raise taxes to maintain police, education and other core functions. Assuming further that tax rates go up on lower-valued homes, resulting in nominally lower tax bills, will those who complained about increased bills on high valued homes describe this as "tax decreases"? Not likely. My guess is that there will be tremendous friction in increasing rates (not a bad thing in itself) and a very difficult road ahead for some jurisditions that have pursued cuts in times of rising values. This is one of the reasons I would love to see a very serious inquiry by thinking folks into whether there's a way to extricate local goverments from dependence on value-based taxation in preference to income or some other types of taxes. The "NO NEW TAXES" sentiment makes inquiries like this very hard to pursue, even if the result could be more equitable, less burdensome, and easier to administer. Let's see how this plays out over the next year. It might be a very tough time to be a local goverment official.

9:05 AM

Blogger Addison said...

An $800K "lower end townhome"? I really am living in the Matrix. :-)

I've read your past thoughts on what a price decline would do to property tax income, and you should get credit for sounding an early warning on this issue.

12:18 PM


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