Is the realestate bubble bursting?

[jgman]

Real estate is local. The market near D.C. might be as strong as last year. After all, the IRS has a lot of people to hire.

So while your local market might just be as strong as last year, that doesn't mean that most real estate markets are.

10-4......I am in Northern Virginia.....10 miles west of DC

 

[copyright1997reloaded]

Another $5,000 drop today.

Either way over priced to begin with or the market is falling faster than their price cuts...or both.

 

[Dtail]

Our house is down $150K now in just a few months, according to Redfin. The real estate bubble is bursting in our neighborhood.

Our house has dropped 40k in about 3 months.

 

[MarieIG]

My zip code is - slow. It seems as if neither sellers nor buyers are much interested in doing anything. Just very modest price cuts on overpriced houses by sellers; and it doesn't appear if buyers are in a rush to buy.

The foreclosure on the corner remains, and the lawn has died. The listing for a house two blocks over which I had been watching was removed.

I'm reminded of that expression out of China "Let it rot."

 

[socca]

Opendoor bought a home in my subdivision four months ago at a ridiculously inflated price (IMO). This might have been the peak of the bubble (if indeed there was a bubble). The offer price has been dropping steadily and is now only $5k over the purchase price. Add in transaction and carrying costs and Opendoor is going to take a loss on the deal. The only question now is how much. With mortgage rates marching steadily upward the outlook isn't good.

BTW: the first house I bought back in 1991 had a 7.75% mortgage. Will mortgage rates ever get that high during this real estate cycle? I'm happy to be watching from the sidelines.

 

[Chuckanut]

BTW: the first house I bought back in 1991 had a 7.75% mortgage. Will mortgage rates ever get that high during this real estate cycle? I'm happy to be watching from the sidelines.

7.75% is not good, but, I have done worse. I had a 12 3/4% loan. Treasuries were over 10%. That’s why I am very concerned with the current inflation rate. Locking in 4% for five years may not be that great. I sincerely hope my concern is unfounded.

 

[brucethebroker]

Real estate is local. The market near D.C. might be as strong as last year. After all, the IRS has a lot of people to hire.

So while your local market might just be as strong as last year, that doesn't mean that most real estate markets are.

Yep, during the crash of 2007, I visited a relative in Virginia/DC area. I have never seen so many construction cranes across the horizon. New suburbs popping up all over. Back home in the Midwest then, new construction had nearly stopped and very few were buying existing homes.
Found out later that there was a huge hiring binge at Fed Gov during that time.

 

[harllee]

I used to flip houses. In 2009 I was able to pick up a great house in foreclosure for $250,000, 3000 square feet, 2 acre lot, very nice area. It had sold less than 3 years before for $500,000. I moved in, did a little work on it, some landscaping and 2 years later sold it for $450,000 tax free. Real estate values can change really fast. I am going to start looking for foreclosures again over the next few months.

 

[Time2]

7.75% is not good, but, I have done worse. I had a 12 3/4% loan. Treasuries were over 10%. That’s why I am very concerned with the current inflation rate. Locking in 4% for five years may not be that great. I sincerely hope my concern is unfounded.

I got a 13.75% 3 yr balloon mortgage in 1984, straight 30 year was 16.75%

 

[Proteus126]

Yep, during the crash of 2007, I visited a relative in Virginia/DC area. I have never seen so many construction cranes across the horizon. New suburbs popping up all over. Back home in the Midwest then, new construction had nearly stopped and very few were buying existing homes.
Found out later that there was a huge hiring binge at Fed Gov during that time.

I'd like to see a source for the bolded. A quick search didn't seem to back up a huge hiring binge. The first chart below shows a modest rise in Fed employment during the 2009-2011 timeframe. I am pretty certain that even that modest rise was due to a maintenance of a steady hiring rate, at a time when retirement slowed due to the recession.

Additionally, given your thesis, the existing suburbs should have emptied out in the 1990s Fed employment decline, so no need to build new ones in the late 2000s.

The 2nd chart below is very interesting, and shows the percentage of Gov workers (fed, state, and local) vs all workers. Feds have been shrinking for decades. State and Local, not so much.

 

[JoeWras]

Proteus, I have no dog in this fight, but keep in mind the Federal Government sees massive retirements each year. Many retired people stay where they are. And since the retirement age is generous, there's a good chance they'll be young enough to stay in their house, clogging up the housing market. Suburbs don't empty out when people retire.

I'd like to see more sources too, but there's certainly something going on in the heavy Federal Government employment areas and its interplay with housing markets.

 

[Proteus126]

Proteus, I have no dog in this fight, but keep in mind the Federal Government sees massive retirements each year. Many retired people stay where they are. And since the retirement age is generous, there's a good chance they'll be young enough to stay in their house, clogging up the housing market. Suburbs don't empty out when people retire.

I'd like to see more sources too, but there's certainly something going on in the heavy Federal Government employment areas and its interplay with housing markets.

This isn't a fight. I just wanted some facts to back up the anecdote, since crediting Fed hiring for cranes across the horizon and new suburb development didn't ring true. Unrebutted, it could lead folks to believe that Federal employees made out on the backs of their suffering fellow citizens.

I have lived as an adult primarily in the DC area since 1992, bought a house in 1998, and both sold and bought a house in 2008, and have watched friends and family do same over the years. So I have some feel for the market. FedGov certainly acts as a stabilizer on the local housing market. By the way, this stabilization happens both on the way down and on the way up. DC wasn't among the hottest markets last year, for instance.

The "cranes across the horizon" phenomenon that Bruce observed typically is when the Gov-related MegaCorps get paid. Or it could have just been Tysons that he saw! It wasn't a horde of newly minted GS-9s.

 

[Spanky]

Yup, according to Zillow estimates, our home is off nearly $100K from the peak earlier this year. Still, it's up hugely since we bought in 2019.

LOL - went up ~2.5X in ~8 years. Amazing!

 

[copyright1997reloaded]

This isn't a fight. I just wanted some facts to back up the anecdote, since crediting Fed hiring for cranes across the horizon and new suburb development didn't ring true. Unrebutted, it could lead folks to believe that Federal employees made out on the backs of their suffering fellow citizens.

I have lived as an adult primarily in the DC area since 1992, bought a house in 1998, and both sold and bought a house in 2008, and have watched friends and family do same over the years. So I have some feel for the market. FedGov certainly acts as a stabilizer on the local housing market. By the way, this stabilization happens both on the way down and on the way up. DC wasn't among the hottest markets last year, for instance.

The "cranes across the horizon" phenomenon that Bruce observed typically is when the Gov-related MegaCorps get paid. Or it could have just been Tysons that he saw! It wasn't a horde of newly minted GS-9s.

There is a reason why the Washington DC area now has most of the highest household median incomes in the nation. It certainly isn't because it is Silicon Valley or an industrial powerhouse. I'm not saying it is just Federal Government employees - no, the even better money is those trying to influence government policy or feeding off the government (contracts).

For instance, this 2019 article from CNBC: https://www.cnbc.com/2019/03/20/the-highest-earning-region-in-the-us-isnt-in-new-york-or-california.html discusses some of those amazingly high earning median income counties. The numbers today would likely be higher than 2019.

I don't have a dog in this fight either, except as a taxpayer who over the years has paid a LOT of money to support those folks in these counties. OTOH I live near a state capital, so I too live in an area that has benefited via the perks a state capital area gets compared to other similar sized cities/metro areas.

 

[audreyh1]

Lobbyists buy homes too.

 

[anethum]

There is a reason why the Washington DC area now has most of the highest household median incomes in the nation. It certainly isn't because it is Silicon Valley or an industrial powerhouse. I'm not saying it is just Federal Government employees - no, the even better money is those trying to influence government policy or feeding off the government (contracts).

For instance, this 2019 article from CNBC: https://www.cnbc.com/2019/03/20/the-highest-earning-region-in-the-us-isnt-in-new-york-or-california.html discusses some of those amazingly high earning median income counties. The numbers today would likely be higher than 2019.

I don't have a dog in this fight either, except as a taxpayer who over the years has paid a LOT of money to support those folks in these counties. OTOH I live near a state capital, so I too live in an area that has benefited via the perks a state capital area gets compared to other similar sized cities/metro areas.

7 of the 10 most educated counties in the USA are in the DC area.

https://databayou.com/education/edu.html
click on "Graduate Degree" on the right, then scroll down to see names of the Top 10. One note, VA has some independent cities which are not part of a county. These include Falls Church and Alexandria, both of which are included in the Top 10 of most educated counties in the US.

The percentage of federal employees in the DC area has gradually dropped over the past decades as the DC area population has grown enormously. The following site says there were 364,000 federal employees in the DC area in late 2017. The 2020 census found that the population of the DC Metropolitan area was 6,385,162.

https://wtop.com/business-finance/2018/02/exactly-many-washingtonians-work-federal-government/

In recent decades, NoVa (northern VA) has seen an explosion of tech jobs. Some are so-called "Beltway bandits", which thrive on federal government contracts. But others (e.g. the telecom sector) do not have a direct federal connection. Montgomery Co., MD, has had a surge in the health & medicine-related field. (e.g. Novavax is a startup there). Arlington, VA, was picked to be the site of Amazon's "HQ2".

The DC area is a substantially white collar job region which has attracted highly educated people. There is also the existence of foreign embassies, international organizations (e.g. World Bank, IMF), "think tanks", and journalists from around the world, all of which employ highly educated individuals who are generally well-paid.

 

[brucethebroker]

This isn't a fight. I just wanted some facts to back up the anecdote, since crediting Fed hiring for cranes across the horizon and new suburb development didn't ring true. Unrebutted, it could lead folks to believe that Federal employees made out on the backs of their suffering fellow citizens.

I have lived as an adult primarily in the DC area since 1992, bought a house in 1998, and both sold and bought a house in 2008, and have watched friends and family do same over the years. So I have some feel for the market. FedGov certainly acts as a stabilizer on the local housing market. By the way, this stabilization happens both on the way down and on the way up. DC wasn't among the hottest markets last year, for instance.

The "cranes across the horizon" phenomenon that Bruce observed typically is when the Gov-related MegaCorps get paid. Or it could have just been Tysons that he saw! It wasn't a horde of newly minted GS-9s.

Two items:
1. From the looks of your first chart (Fed ees only) it appears that Fed ees increased from the 2007 crash until a large spike in late 2011, and THEN decreased.
2. Did you make money on the sale of your personal home in 2008? I know real estate in the Midwest and FL (a market I was also familiar with at that time) really dropped in value and there were few if any buyers. If DC values were stable, then perhaps something else was happening in your local economy-and you could be right, it might not have been because of hiring.

I can only report what I saw and was told by relatives living in the area-they told me hiring was up. They told me builders could not keep up with demand in the suburbs. DC real estate was sure different to what I had observed elsewhere.

 

[Proteus126]

Two items:
1. From the looks of your first chart (Fed ees only) it appears that Fed ees increased from the 2007 crash until a large spike in late 2011, and THEN decreased.

The 2011 spike you mention is census workers (so actually 2010?) The chart isn't good enough to differentiate which tick mark is what year to my tired eyes. The census spike happens every decade, as you will see if you look circa 2000 and 1990 etc.

And it appears that I owe you an apology. I struggled to find new-hire data, and just found this chart from the WaPo that supports your contention that the Fed Gov was indeed hiring briskly in 2008-2010.

So I was wrong. Imagine that!

Now, what drove cranes across the horizon is unknown to me. I still think it was Tysons.

 

[Montecfo]

There has been steady growth. I have lived here since 1988 except for 3 years in Scottsdale.

You can't tell much by federal employees since there are so many government contractors. I do not see the "spike" but property values fell hard in 2007-8 as in most places and only recently reclaimed new highs, at least in my suburban neighborhood.

The has also been a lot of corporate relocation here by tech companies wanting to be closer to the government (ugh), internet related or pharma.

Households which have two folks working in government or tech can pull down pretty good incomes and still qualify for pensions.

I never worked for government or contractor. I spent my entire career in tech finance.

 

[tryan]

Property in my hood has been on the market for months at 800k. Closed this month for 675k. That's a heck of a mark-down.

The buyers must think they got a great deal ... they are gutting the place. They are in the process of filling thier 4th 30 yrd dumpster.

 

[tryan]

the first house I bought back in 1991 had a 7.75% mortgage. Will mortgage rates ever get that high during this real estate cycle?

Sold one in the hood two months ago ... the young buck who bought it is paying an investor mortgage rate of 7.75%

 

[ShokWaveRider]

Our prices seem stable, but not much has sold for a while. Which is OK with us.

 

[oldphd]

I got a 13.75% 3 yr balloon mortgage in 1984, straight 30 year was 16.75%

I got a 30 year in late 1982, don't remember exactly but IIRC, about 13.5-14%.

And I recall reading an article in the WSJ print edition sometime in the early 80s, where there were predictions by "experts" that we would NEVER see interest rates under 10% again!

 

[aja8888]

I got a 30 year in late 1982, don't remember exactly but IIRC, about 13.5-14%.

And I recall reading an article in the WSJ print edition sometime in the early 80s, where there were predictions by "experts" that we would NEVER see interest rates under 10% again!

I got a 30 year in 1981 in California for 18.75%. Refied two years later at 10% and thought I died and went to Heaven.

 

[jgman]

I put my house on the market this weekend. Had huge crowds and now have 4 very good offers all above list. Just depends where you are located.