Housing Market Update: Are Prices Finding a Bottom? And Housing Bleg:

Tolls Brothers builders last week reported that the D.C.-area housing market, which was the first to collapse, seems to be finding a bottom; my wife and I have noticed that houses in Arlington suddenly seem to be selling, at least if they are priced right; and data from the MRIS shows sales in Northern Virginia picking up, although there are still fewer sales than there are new homes coming on the market.

Does this mean that prices, at least in the D.C. area, are near a nominal bottom? Or is this just, as true housing bears suspect, the calm before the storm (aided by a sudden dip in interest rates), just before the market gets flooded with new inventory in Spring 2007? We shall see.

Speaking of the sudden increase in sales, I was all set to rent a single family house walking distance to the Ballson metro, but the day I was going to sign the lease, the owner got an acceptable offer to sell and took it. The house had been on the market for months, but of course a buyer decided to put an offer in just when I was about to sign a lease. We have some other options, but it can't hurt to ask: if any readers know of a three bedroom townohouse or single-family house for rent, walking distance to an Orange line or close-in red line metro, six months to a year lease, looking for very responsible tenants, you can email me at deliot at sign aol dot com

TheSnakeGuy (mail):
I think its important to note that Toll Brothers sells high end homes which tends to be less sensitive to price pressure.
12.11.2006 11:08am
Lonely Capitalist (mail):
looking for very responsible tenants,

Wasn't there a court case that said it was okay to refuse to rent to lawyers?
12.11.2006 11:08am
John T (mail):
I'm not sure if the DC metro area market will really be flooded in the spring with new supply. After all, housing starts have been way down too.
12.11.2006 12:01pm
DavidBernstein (mail):
John, I don't know either, but I have seen lots of people pulling their houses off the market and renting them for six months, or just planning to relist them in Spring. So we'll see.
12.11.2006 12:08pm
David A. Smith (mail) (www):
Single-family home prices tend to resist price drops, for a variety of reasons, one of which is that as mortgage demand goes out of the marketplace, interest rates tend to fall.
I suspect you are at the bottom; prices will tick up again in Feb-Mar, which always signals the start of another selling year.
12.11.2006 1:08pm
Some folks have pulled houses off the market, but my gut feel is that sellers have wised up. They have realized that getting housing boom prices is impossible and they have repriced to the market. In my area (DC-metro Montgomery County, MD), townhouses that were listed at 580, at the peak, are now 510. That's a 15% drop. Of course, they may not have been getting 580, and they'll probably take 505.

Many of the buyers who have been biding their time will probably start buying in the Spring, so I would guess, rather than a further crash, we'll see a price stabilization, perhaps with a few upward/downward swings as spring comes on.

I don't think we'll see all the leased houses coming back onto the market suddenly - remember, the leases are not co-terminus, nor are they even the same length. The REALLY interesting bit of this will be the DC condo market, which is going to get smacked with a glut due to new buildings coming on line in 2007. Of course, they were all overpriced to begin with.
12.11.2006 1:23pm
SnakeGuy: High end homes are less sensitive to price pressure? This doesn't seem to mesh with what housing market observers have been saying for some time: that it is the luxury segment in places like California and Florida (and D.C.) that had/have the farthest to fall. It also seems to make intuitive sense that the luxury housing market would be hit harder, since people facing financial trouble are more likely to scrimp on luxuries than essentials. By contrast, one would expect that midrange housing markets would be the beneficiaries of such a cutback, since people previously looking for luxury homes would now have entered the market for midpriced ones. I don't have data on this, but this seems to be the natural behavior pattern of people who are becoming more risk-averse or who are confronting more stringent resource constraints.

On the issue of new supply in the spring: There will likely be a good deal of new supply in the spring, but it's also true that buyers tend to appear in the spring as well (many of whom are also sellers, since there are still many people following the apparently-somewhat-passe model of selling their old home before buying a new one). I don't think new supply alone will trigger a further downturn in prices. I would continue to keep my eye on the factors that people have already identified: overextensions on home equity that could force hurried sales, and increases in interest rates that reduce the number of qualified buyers.

(My usual rule of thumb is that the market hasn't truly bottomed out until people say "there's no way it can go any lower" and hasn't topped off until people say "it's going to keep going up forever!")

David: I wish you the best of luck. Unfortunately, the D.C. rental market, at least from the perspective of a goodly number of people looking for three-month leases starting this past May and ending in August (i.e., our flock of eager summer associates migrating north for the warmer months) was white-hot. It does seem to have cooled some since then, but to what degree is difficult to say.
12.11.2006 1:27pm
John Doe (mail):
What would the legal blogosphere do without David Bernstein's crucial and timely observations as to the Northern Virginia housing market? He should really try to post something about this every day, not just weekly or biweekly. Give us more!
12.11.2006 1:53pm
John T (mail):
but I have seen lots of people pulling their houses off the market and renting them for six months, or just planning to relist them in Spring. So we'll see.

True, and I've seen that too. After all, I'm currently renting a townhouse whose owners are renting precisely because they tried to sell (at a nice tidy $200k profit in 3 years) and it sat on the market for six months. There are some rents that seem a bit low because the owners really want to sell and aren't interesting in being long-term landlords.

I'm not interested in buying right now (recent graduate), and I'm pretty happy in my place. I locked in a 18 month lease at one rate; a lot of people are trying to rent for six months, or with clauses where they can kick people out after a month or two's notice if they sell. Not for me.
12.11.2006 2:12pm
DavidBernstein (mail):
This is not a legal blog, this is a whatever-the-bloggers-want-to-blog-about blog. But I'll be glad to stop blogging about housing in the future if you can prove to me that I've blogged about the subject even biweekly. Better yet, why don't you just use "exclude a blogger," so we don't waste readers' time with silly complaints about subject matter?
12.11.2006 3:01pm
DavidBernstein (mail):

Thanks. The rental market is much better now (for renters) than it was a few months ago. The problem is that my wife and I both have some idiosyncratic requirements, including being walk-to-metro, and there isn't much available in the latter category beyond apartments. If we wanted to live in Arlington even a bit over a mile to the metro, no problem.
12.11.2006 3:03pm
Porkchop (mail):
There is a recently renovated Cape Cod in the 4800 block of North 16th Road (just west of the intersection of North Buchanan and North 16th Road) that is now for rent. It had been "For Sale or Rent", but I noticed that the "sale" part of the sign has disappeared. It changed hands within the last year or so, and the new owners apparently want to get out. I don't know why. I don't know what the rental terms are. I think that REMAX has the listing. You might want to take a look at it. It's in Waycroft-Woodlawn roughly 1 mile/20 minutes on foot to the Ballston Metro station (Buchanan to 16th Street to Glebe Road to Fairfax Drive).
12.11.2006 3:30pm
DavidBernstein (mail):
Thanks, Pork, that's might kosher of you.
12.11.2006 3:33pm
I don't think the walk from 16th and Buchanan, on a daily basis, would be a nice one. I think there are a good number of houses in Lyon Park and Ashton Heights for rent; asking prices seem to range from 3K for an unrenovated 3BR to 4K for a updated 3-4BR, depending on distance to metro.
12.11.2006 3:39pm
DavidBernstein (mail):
Well, if any of you see something that just has a "for rent" sign, no sign of a broker, please forward me the number. We were in town yesterday, and saw a place like this, guy has been renting it for 20 years, doesn't advertise, wanted only $1,700 for a 3 br place quick walk to WFC metro. Unfortunately, he already offered it to another family who is very likely to take it. Thanks.
12.11.2006 3:42pm
Should have added, there are very few houses for rent in Lyon Village (with perhaps 15% higher rents) and a decent number for rent in the area north of Fairfax but south of 66 (not sure what it is called), which is not that expensive but also less nice and neighborhoody.
12.11.2006 3:43pm
Not sure I have seen a livable SFH on the orange line (Courthoust-Ballston) under 2500 for quite some time. Can perhaps find a townhouse for that, depending on the distance. Once you get past maybe .5 miles the prices tend to drop.
12.11.2006 3:47pm
Porkchop (mail):
You're welcome. My pleasure.

I don't think the walk from 16th and Buchanan, on a daily basis, would be a nice one. I think there are a good number of houses in Lyon Park and Ashton Heights for rent; asking prices seem to range from 3K for an unrenovated 3BR to 4K for a updated 3-4BR, depending on distance to metro.

Actually, a lot of people in my neighborhood seem to take that walk with no problem. Or you could take the Number 51 ART bus, which stops at 16th and Buchanan, a block from that house, roughly every 20 minutes. BTW, there were workmen trimming trees in that yard this morning. I don't know whether that means that it has been rented, though.

You're really fixated on your neighborhood, aren't you, anonassociate? Believe it or not, there are other parts of Arlington where people do manage to limp along through life. ;-)
12.11.2006 3:49pm
Believe me, there are other parts of Arlington and NoVa I woudl rather live in--but ease of commute trumps all. Not doubting the commute can be done from where you say, but just noting that if ease of commute is priority, you are more limited in your choices. Not making any value judgements.
12.11.2006 3:51pm
DavidBernstein (mail):
The place we lost we would have paid $2,600 for a very livable, 2,000 squ. ft. plus unfinished basement and unfinished attick plus garage, .7 mi from Ballston. My old place rented out last year for 2,500, 2400 sq ft duplex plus detached garage, with nice yard, .6 mi to Ballston. I had been paying $2,175. I find that people are willing to give you a discount if they see you are a small family, not a group of 20 somethings or a family with four kids.
12.11.2006 4:46pm
I find that people are willing to give you a discount if they see you are a small family, not a group of 20 somethings or a family with four kids.

Doesn't that violate the FHA?
12.11.2006 5:05pm
Doesn't that violate the FHA?

To answer my own question, it looks like it does not. See 42 U.S.C. ยง 3603(b)(1) (FHA prohibitions generally do not apply to a SFH sold or rented by owner).
12.11.2006 5:12pm
I agree with professor bernstein on the family discount; also the elementary schools are of quite varying quality depending on what side of glebe, 50 and wilson we are talking about so that might explain some price differences. There are a bunch of really nice attached houses just south of Wilson that a lot of young professional families seem to rent, have you looked at those?
12.11.2006 5:18pm
DavidBernstein (mail):
Actually, without looking it up, I thought the exemption for the FHA only applies to owner-occupied housing. But in any event, it's not me who's violated the FHA, it's them, and if they're smart, they don't say we want you because you don't have lots of kids, they say, "we really enjoyed meeting you and think you'd be great tenants, so we're willing to take $200 off the rent." BTW, if I were looking to rent a house and had four kids, I would never tell the owner.
12.11.2006 5:19pm
Some Guy (mail):
I hate to sound like some punk college kid gloating over the bubble, but I highly doubt the DC metro area has hit bottom. I'm just basing this off median incomes and affordability of housing. U.S. Census puts average household income in DC at $49,000 (2003- This means the average household has a take home pay in the $30,000 range.

Using the "bargain" $510,000 condo mentioned above, a 25-year fixed mortgage at 5% with $100,000 down [?!]would work out to about $2500/mo. Of course, $30,000 annual take home equals $2500 per month, meaning the average household in DC could not come close to affording even the "bargain" condo.

Sure, many households have unearned profits from sale of previous residence to roll into the new home, but how many have more than $100,000 in profit? And, yes, I understand that many households (my own included) are well above the $49,000 average. And by no means do I claim to be a real estate expert.

But I just can't shake my own common sense take that tells me that no housing market that prices the average first-time buyer household out of owning is self-sustaining.

p.s. I know, it looks like I set those numbers up to match, but, believe it or not, that was a coincidence that surprised even me. I just knew when I started that prices were out of whack with average take home income, I didn't realize how badly they were out of whack.
12.11.2006 5:32pm
DavidBernstein (mail):
We drove around south of Wilson, didn't see anything to rent.

Note, some guy, that I said that it's possible that NOMINAL prices have bottomed, or close to it. I very much doubt that real prices have bottomed. Last time there was a runup in D.C., real prices (after inflation) went down almost 50% before it ended, but nominal prices went down much less, maybe 15%.
12.11.2006 5:40pm
Some Guy (mail):
Guess I just felt like elaborating. I understand that the median single family home price in DC is well below $500,000. However, my own experience in house-hunting in Arlington revealed that any home even remotely close to the Metro or a highway was going to run $700,000 for a 3BR that wasn't falling down. Even if you assume a 3BR sale price of $350,000--which you WILL NOT find anywhere near DC--you're still looking at a $2000/mo payment, which is 80% of the income of the average DC household.

That aside, no matter what houses were selling for, the absolute most a $49000-a-year income can qualify you for is about $150,000 worth of house, and that's assuming you have $0 other bills (e.g., property tax, auto payment, insurance, health care, food, etc.). YOU CANNOT FIND THAT IN DC.
12.11.2006 5:42pm
Patrick Rothwell (mail):
As a DC condo owner, I've noticed a ton of condos that will be delivered in 2007-08, and I am hoping against hope that there will be enough people who want to reside in a "living downtown" to buy them. I still think that is a realistic possibility, but if not, then it could be painful few years.
12.11.2006 5:46pm
TomHynes (mail):
<i>What would the legal blogosphere do without David Bernstein's crucial and timely observations as to the Northern Virginia housing market? He should really try to post something about this every day, not just weekly or biweekly. Give us more!</i>

I am thrilled John Doe read Orin Kerr's "Sarcasm is not an argument" post.
12.11.2006 7:22pm
dave s (mail):
I think you'll do well to contact some of the RE firms which handle houses for people who are overseas for some years. We used a management firm while we were in Switzerland for three years, and they had forty-fifty other houses in Arlington and FFX under management - they're gone now (owner died) but there are other firms with the same niche. On our street (600 feet from GMU law school) there are two houses being rented out in this sort of situation, and another speculative rental. They often know of upcoming vacancies many months in advance, and are happy to strike a deal early.

I think there is some price premium for being in the Long Branch school district - which I think is foolish, Barrett is a fine school, and anyway the County will generally let parents apply into out-of-dictrict schools if they transport their kids - but if you don't care about school district you may do better on price if you look in Barrett.
12.12.2006 10:00pm