Real Estate Bubble in D.C. - CBS News tonite....

On the C.B.S. news tonight, they had a story of Baby Boomers pulling their money out of the stock market to invest in Real Estate. Mostly Single family homes. - They cited that in Washington D.C. over the last 3 years real estate has risen over 69%, while the stock market has done squat. So these people were buying big time.

They interviewed a couple of these folks and they had all claimed "that at least with real estate they can't lose"

They obviously see nothing wrong with plunging their retirement savings into an asset class that has appreciated over 69%!

They ended the story with the folks in Washington D.C. used to talk politics, now they talk Real Estate!

Can anyone say 'Bubble' :

[Spanky]

Those who purchased the houses 3 years ago should sell now.

Spanky

[laurence]

4 pillars talked about this, how people keep equating past performance with future performance. San Diego real estate has gone up over 100% in the past 5 years, and people are still speculating! The really sad stories at my work are people who are buying horrible properties because that's all they can afford to speculate with (think trailor home for a quarter mil). :P

[Marshac]

I don't know about DC actually. We're bidding on a government contract, and part of it says that all work must be conducted within a 50mi radius of WA DC. I really don't see why that's necessary in our case, but if this is indeed the norm, and you need to be within 50mi of DC to get a slice of government pie, then I can see prices going sky high.

In November we sold our house in the DC suburbs for $75K higher than any other house in the neighborhood had sold (and 7 times what we paid for it) - now 6 months later our house is back on the market and they are asking $90K more than what we sold it for. We sold ours thinking it was the top of the market and couldn't go higher - but it just seems to keep going higher and higher. I'm happy with what we got for the house and happy to be gone from the DC area.

[Spanky]

Quote:

Originally Posted by Marshac I don't know about DC actually. We're bidding on a government contract, and part of it says that all work must be conducted within a 50mi radius of WA DC. I really don't see why that's necessary in our case, but if this is indeed the norm, and you need to be within 50mi of DC to get a slice of government pie, then I can see prices going sky high.

This is another example of rules and policies of the government that makes no sense at all. May be at one time the rules were applicable. We are constantly forced to comply with many of the FDA regulations that are of questionable value.

Spnaky

[Marshac]

Quote:

Originally Posted by Spanky May be at one time the rules were applicable.

How far can you ride a horse in a day?

[laurence]

Quote:

Originally Posted by Marshac I don't know about DC actually. We're bidding on a government contract, and part of it says that all work must be conducted within a 50mi radius of WA DC. I really don't see why that's necessary in our case, but if this is indeed the norm, and you need to be within 50mi of DC to get a slice of government pie, then I can see prices going sky high.

Worked a lot of government contracts, that's never been a requirement for us. Can you talk any details on that? I have some co-workers who work in the DC area and live as far as West Virginia due to the housing cost. Maybe some DC neighborhoods will get gentrified because of this?

[gratefuled]

I can tell you that my in-laws doubled their money on a Manassas, VA mini-mansion in just three years. They're in Colorado now, building a new home with the proceeds.

Ed

[LEX]

Perhaps the most famous example of a speculative bubble is the "tulipmania" that struck 17th century Holland. Known for their passionate love of flowers, the Dutch highly prized the tulip upon its introduction to Western Europe in the mid-16th century. Dutch collectors devised a hierarchy of tulip varieties based upon their species and coloring, assigning values to the various flowers. Because it was impossible to determine which variegation would bloom from a particular bulb, the tulip became an object of speculation. During their earliest years in Europe, the bulbs were primarily of interest to the wealthy, but by the mid-1630s the craze caught on with middle-class and poorer families. The increased demand caused the price of the bulbs to soar. In February 1637, as spring drew near and the bulbs were close to flowering, consumer confidence evaporated and the market suddenly crashed. As the price structure collapsed hundreds who, a few months previously, had begun to doubt that there was such a thing as poverty in the land suddenly found themselves the possessors of a few bulbs, which nobody would buy, even though they offered them at one quarter of the sums they had paid for them. (see Edward Chancellor's Devil Take the Hindmost: A History of Financial Speculation. (New York: Penguin, 1999). History may not always repeat itself, but it often rhymes.8)

[Marshac]

I first learned about the tulip 'bubble' from this site-

http://www.stock-market-crash.net/index.htm

Very interesting.

[LEX]

Its my opinion that there is a bubble in the top ten or so "markets", being feed by cheap money and manipulative brokers.* I may buy real estate as an investment, but only after the market crashes and a house can be had for less than the value of the land its on and the materials it took to build it. There is wealth to be made in buying into a position that is opposite the poor judgement of conventional wisdom.* The silly "lemming off the cliff" investment scenario will fall like a bad soufle. If one wants to take a great investment position, buy into the payday loan industry and 99 cent stores, since that will be where the last guys holding the bag will be getting their money and shopping in a few years!

[Craig]

You can also read about the tulip craze (as well as many similar panics) in Manias, Panics, and Crashes: A History of Financial Crises (Wiley Investment Classics) by Charles P. Kindleberger.
http://www.amazon.com/exec/obidos/AS...262637-6018261

One interesting point above is what it says about the stock market ... makes some sense that the residential housing situation may be having a depressive impact on the stock market, no?

[lets-retire]

I have to take a skeptical approach to the real estate "bubble." If large number of houses are sitting empty then I can see the concern. I have not heard of nor seen too many investors having to hold a house for long periods of time waiting for a renter. EVERYONE needs a place to live. If the house prices are too high I think they will stall, but not fall, absent a change in policy from the government or banks.

Of course this could just be my little part of the world.

[BUM]

These things happen in cycles. We are sitting on a parcel-by-the-sea which was humdrum for years. Now the prices are not even quoted. The frenzied brokers just ask "What do you want for it?". Then they go get it. This too shall pass. I like watching the sizzle though, and have no intention of selling. My neighbor has a nice house on a big lot. He shot off his mouth and said to the broker-man, "I'll sell for a million." The broker said ok and left. Now my neighbor can be seen nervously peering from around the garage or kitchen window. He's scared that someone might be pulling up the drive to give him a million bucks.

[tryan]

I've got family in the DC area each has seen thier house triple in value. But it's been a double - edge sword .... each would like to upgrade (new kids) but can't afford to move without leaving the area. So there they sit ... kids sharing bedrooms.

[qoute]
I have not heard of nor seen too many investors having to hold a house for long periods of time waiting for a renter.
I watch rents pretty closely in our area (skimming Rentals section of the classified in the newspaper). Seems to me the trend is down 15-20% over the last 6 months to a year. Think there's two reasons for this:

1) renters can't afford to subsidize the ridiculous prices the owners paid. Wages simply haven't kept pace with home prices.

2) owners have gotten anxcious after holding a vacancy 3-4 months and paying for upgrades they thought would bring the asking rent.

My last vacancy went exactly like that ... I dropped the rent $100 every 2 weeks until the "right" person came. This after sitting vacant 4 months (largely due to a rehab effort needed after a 10 year tenant). The "right" family finally signs ... barely qualifying (needed continued OT or the wife to go back to work). A few months later he's behind (OT dried up) ... a few months later he moves. Now I am back to square one (so I sold).

Also for the first time in 8 years I am not pushing 5% rent increases on my lease renewals.

Enjoy!

[grumpy]

The D.C. market seems pretty crazy. We sold our house in a Maryland suburb in December. It sold for $25K more than the house across the street which sold 3 months before. We bought our new home in a "55 or better' community in a Northern Virginia suburb. We signed the contract in April of '04 and moved in this Feb. The same model is now selling for $73K more than we paid!

I know a younger couple whosigned a contract on a new house in West Virginia with the idea of renting it for a year or two and then selling it. The house is not even finished yet and has gone up so much that they now plan to flip it and buy another. The high price of D.C. area real estate is causing folks to commute from W. Va.!

Grumpy

[Marshac]

Quote:

Originally Posted by grumpy The high price of D.C. area real estate is causing folks to commute from W. Va.!*

The traffic is unreal. I was there a few months ago for a meeting.... couldn't believe that there could be traffic conditions WORSE than in Seattle. :P

[Nords]

Quote:

Originally Posted by Marshac The traffic is unreal. I was there a few months ago for a meeting.... couldn't believe that there could be traffic conditions WORSE than in Seattle.* :P

Hey, even in Hawaii the traffic can't back up farther than the island is round.

25 years ago I tried to leave the DC area for Williamsburg on the 4th of July weekend. Couldn't even get off the Beltway. Subsequent visits just seemed worse. Today routes 50, 450, 301 are progressively becoming parking lots. Then add in the winter weather. Considering the congestion & lack of infrastructure, I'd hate to have to make every decision on whether or not I could get out of the driveway.

My FIL bought a Bowie house in 1965 for $17K and cackled gleefully when he sold it in the 80s for $88K. Now he wishes he'd rented it to one of the kids... what are those homes up to, $300K?

[cute fuzzy bunny]

Tulip-mania, the internet phenomena, and real estate prices in a lot of areas shows the short to intermediate psychological influence on pricing. Over longer terms the realities of economics flatten things out, but it may take 20+ years to flatten out these trends. What was it Alec said? The markets are efficient except when they're drunk? People get drunk on their investments all the time.

Real estate has always been a simple one for me. How much is it, minus the cost to develop the property and build the home. Whats left is the simple value of the community, neighborhood and the piece of property. If its a small lot and that number is in the hundreds of thousands, its frickin overpriced.

Buy something where the prices are more reasonable and a visible catalyst is poised to make a change. 20 years ago I bought in a so-so neighborhood where a commuter rail into the main city 15 miles away had just been established. Plans were in place for about 400 condo units to be built across the street. The house I bought was less than a mile from that. Prediction was a lot of yups would buy those condos cheap and ride the train into the city, and eventually want to buy a home in the same area within striking distance of the rail line. That worked. My last house was bought for the cost of lot development and construction costs plus about $20k for the park-like half acre in a very upscale community...area had overbuilt big mcmansions and there were way too many properties for sale. My current place is a very nice neighborhood in a very so-so town. Prices in the areas just to the south have gone through the roof. A straight line road to the main local city is being widened to four lanes each way. When its done the commute from here will be faster than from my old ritzy neighborhood just east of the city. Since I bought here, new home construction has skyrocketed. Guess whats going to happen in another year or two? My home here was development/construction cost plus about $25k for the 1/4 acre lot. Its gone up $150k in 2 years. I dont think its done yet.

I guess the bottom line is if, when you're buying, you feel like you have to "do something now to get the property" or that you're in a race with other buyers, or that you have to grab something without getting an inspection, etc...find someplace else to look for a house.