Comments on: Housing appreciation in the Charlottesville region – second quarter 2007

By: Luke Harms

Luke Harms — Mon, 17 Sep 2007 16:40:24 +0000

As a real estate amateur and an intelligence professional, I know one thing for certain, the Defense Intelligence Agency is moving a sizable portion of its operations to Charlottesville, creating a significant number of high-paying jobs and likely keeping prices inflated as they have been over the past few years, so I have no fear in buying a house right now, in fact I’m building one. Granted, this may be a rookie move in a seasoned real-estate investor’s eyes, but the addition of 300-400 households to the Charlottesville MSA seems to be indicative of future growth of the housing market in C’ville for years to come. Perhaps this is the reason behind, as one commenter put it, “why developers seem bound and determined to push through large-scale plans through local governments.” Perhaps it is because they are basing their investments on the potential for future growth. Or maybe I’ll just too bullish for my own good.

By: Jim Duncan

Jim Duncan — Mon, 17 Sep 2007 11:19:32 +0000

Thank you everybody for the excellent comments. I apologize for neglecting this thread and will try to never let it happen again.

By: JR Jackson

JR Jackson — Wed, 12 Sep 2007 14:35:12 +0000

I really question the value of these median price metrics, since it’s entirely possible that you’re not looking at an apples-to-apples comparison. After a closer look at the VAR’s July numbers, it seems that “median price” is really not at all indicative of market trends, which seem poor and getting worse with each passing month in this area.
Consider, average days on the market of 86 marked an increase of nearly 50% from the same month in 2006 and 10% from June ‘07. Homes sold were down 30% in July and are off 14% year to date. I could be mistaken, but a 30% decline in monthly sales is pretty much the worst number this market has ever seen. It’s the sort of decline you’re seeing in Bubble markets like Orlando and Miami.
The only thing preventing a full-blown panic might be the continuing efforts of the media to quote VAR members offering reassurance that real estate will still prove to be a good investment. Or, in the case of the Daily Regress, their decision to completely ignore the bad news. (Perhaps not wanting to anger their builder/Realtor advertisers?)
It makes you wonder why developers seem bound and determined to push through large-scale plans through local governments. Dumping massive supply into a rapidly declining market doesn’t seem to make much economic sense.

By: NM real estate

NM real estate — Mon, 10 Sep 2007 02:54:05 +0000

Well, I don’t have a lot to say but I really enjoyed reading this post. Thanks!

By: JC

JC — Fri, 07 Sep 2007 21:43:35 +0000

Anon raises a really important point — rents and prices for owner-occupied housing are completely out of whack in the C’ville area. I live in a 3-bedroom in a very good neighborhood near the UVA campus. It’s in great shape and has nice property. I rent it for well under $2000/mo. The same property was recently assessed at just above 500k. If I bought it, my mortgage payments — even if I paid 10% less than the current assessment — would be (inc. taxes) more than $600/month more than rent. This is calculated using a 20% down payment and the current rate for a 30 yr. fixed loan. I’m also being conservative by counting the full mortgage interest tax benefit, even though the AMT takes away some of that benefit for me. And I’m not counting the opportunity cost of having my 90k tied up in a house that is likely to appreciate very slowly. I’m also not counting the repair costs that I would have to carry if I owned the house. So, in sum, the $600 extra that owning would cost me probably understates the cost of owning.

There is no reason why rents and mortgage payments should be so out of kilter, except for the fact that the price of owner-occupied housing is bubbly. Very bubbly. And even if housing prices are sticky and they don’t come down much in nominal terms, I betting that they will fall in real terms — i.e., that people who buy now will suffer long-term losses as inflation eats away at the stagnant value of their house over the next decade.

And by the way, there is nothing very special about the C’ville housing market. Yeah, it’s a nice place to live, but that only goes so far. I would remind everyone that C’ville median income is pretty low given the price of housing, that job growth here is not spectacular (and there is little growth at the high end of the wage scale necessary to support current housing prices), and — very importantly — that a recession is very likely on the way (see today’s job report — first net monthly loss of jobs in 4 years).

By: Anon

Anon — Fri, 07 Sep 2007 15:39:06 +0000

My personal take:
Put all the subprime, national, macro, bubble talk aside: I cannot afford to own a home.
Wy wife and I just spent several intense weeks on MYCAAR, and a few parading through (mostly vacant) houses with Jim. I make 60 grand a year. My wife is a stay-at-home mom caring for soon to be 3 kids. We cannot afford to own a home in Charlottesville that:
1. Has at least 3 bedrooms
2. Has a garage or some storage space.
3. Is in a safe neighborhood.
We could skimp and scrape like we did in Northern Va, and make the $2100/month payment that a $300k home requires, but let’s step back:
That’s half what I’m taking home!
I say again: half of my pay! The other half has to cover car payments/insurance, gas, groceries, health insurance…it simply doesn’t add up. And saving for the kids’ college or our own retirement? Forget about that.
I will leave the big-picture stuff to the experts. All I know is I am a professional and I can’t afford to own a decent home for my family. Yes, we chose to have my wife to stay home, and we chose to have a lot of kids, but there was a time when everyone did that and could still afford a home- what changed?
I’m renting. It’s a pain to move ever year, but the same place that costs $2100 a month to own will rent for $1200-1400 a month. That equals 30-35% of my pay and several hundred dollars a month of breathing room.

By: JR Jackson

JR Jackson — Thu, 06 Sep 2007 21:15:57 +0000

Interesting data. I would point out that Realtors weren’t complaining about positive press when the market was at its peak, which in part led to a buy-now frenzy that artificially inflated real estate valuations.
No, this area hasn’t been hit by the subprime crisis, but it’s foolish to continue to believe that the mess is limited to the subprime market – not with the credit markets freezing up and every mortgage firm (including prime shops like National City) cutting way back. Subprime is yesterday’s news. There are plenty of economists predicting that it’s a question of when, not if, the next recession will be upon us.
Sure, the impact in the immediate area might be muted compared with certain other MSAs, but the idea that home sales and prices are going to bounce back anytime soon would seem to be a product of wishful thinking, not realistic economic analysis.

By: Anonymous Coward

Anonymous Coward — Thu, 06 Sep 2007 15:59:04 +0000

Jim — I follow your blog closely; I think it’s a public service to all of us in C’ville/Albemarle, so thanks! Now, a question about prices. You note that OFHEO has reported a 5-year rate of appreciation for C’ville of 71%. That’s more than 11% per annum for the period, which is a rate in excess of four times the historical rate of growth in housing prices.

I bring this up because the single strongest characteristic of any financial asset is the tendency for the growth in its price to revert to the historical mean. Given the hugely above-trend growth rate of the past half decade, that would suggest that we are in for a period of substantially below-trend growth — in fact, if housing cycles run for 5-10 years, I wouldn’t be surprised if housing prices lose ground to inflation over the next decade.

The upshot: there are many reasons to buy a house, but at the moment expected returns on investment are not promising — and that his true even for people who plan to hold for 5-10 years. That is a reality that I think is sinking in now for buyers, and I wouldn’t be surprised to see the number of deals shrink markedly — perhaps by an additional 25-30% — over the next three years. I don’t see any reason not to be deeply bearish on housing.