Bacon's Rebellion

Democracy Thrives in Sunlight

The Average Northern Virginia Homeowner: $31,000 Poorer

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by

James A. Bacon
in

The popping of the real estate bubble is hitting with a vengeance in Northern Virginia, according to the latest numbers compiled by the Virginia Association of Realtors. The average sales price for a home in Northern Virginia was $512,00, down $31,100 from the year before.

Long-time homeowners should escape unscathed — their property values rose so much during the boom that they should have plenty of cushion. But not all homebuyers were prudent boys and girls. Some, we can presume, tapped their rising homeowner’s equity to fund lavish spending. Others bought more house than they really needed or could afford, and now face the prospect of getting sucked dry by mortgage debt. As one of my Northern Virginia friends noted disdainfully, many purchasers of the $1 million McMansions are “house poor.” They’re spending so much of their income on mortgage payments, they don’t have enough money to furnish their houses.

While house values go down, fixed mortgages stay stable and adjustable rate mortgages go up, there is no indication that the local tax burden will decrease. My hunch is that the level of palpable unhappiness in Northern Virginia will rise exponentially, and voters will express their wrath at anyone they perceive as costing them more money. Raise regional taxes for transportation? Er… maybe in the next election cycle.

Northern Virginia is not the only place feeling pain. The Eastern Shore and Massanutten markets have seen precipitous declines as well. (Can anyone say “second home”?) To my surprise home values have increased modestly in Hampton Roads. And Richmond… well, what can I say about my home town? We’re a year behind every trend. Apparently, housing prices rose about 10 percent. Pssst. Guys, the housing boom is over. You can stop now.

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16 responses to “The Average Northern Virginia Homeowner: $31,000 Poorer”

  1. Ray Hyde Avatar
    Ray Hyde

    You are right. I know of at least one large home with empty rooms. I’d rather have a small house and a large workshop.

    Over long periods of time home prices gains have been small but steady: unless you are in the fix up and sell business, where your sweat equity counts, housing is a tough place for quick gains, even for builders.

    My prediction is that we are in for a long run of inflation. If that is true, then those big mortgages will start looking smaller and smaller.

  2. Anonymous Avatar
    Anonymous

    Up, down, the cycle will turn again. People who got greedy and bought 4500 sq ft McMansions they really didn’t need get no sympathy here. People who were speculating should have known the risks, and if not, stupidity gets no sympathy here. And some of us remember 10-11 percent interest rates on homes we really had to have — so it’s all relative.

  3. Larry Gross Avatar
    Larry Gross

    I’m waiting for Ray to say that this is “unfair” and that the government should raise everyone’s taxes to compensate those whose “investments” have been ruined.

    🙂

  4. Anonymous Avatar
    Anonymous

    This was comming and it will get worst
    once the buble expode
    hope the government do something intelligent before the economy goes downhill

    ” REL=”nofollow”>pure hoodia plus

  5. Gold_h2o Avatar
    Gold_h2o

    “People who got greedy and bought 4500 sq ft McMansions they really didn’t need get no sympathy here.”

    Well, that’s practically everyone.

    The part about the cycle swinging up again is true….but the thing that’s going to make this particular cycle painful, at least when things return to normal, is the fact that the growth in the VALUE of your house is not going to increase at double digit levels each year. It’s going to return to NORMAL which in some years means no growth in the value of the home or very little – 1-2 percent.

    The days of your house as an ATM are OVER – and that’s a good thing.

    As far as what the government is going to do;

    -They will tighten lending requirements

    -You will see fewerer exotic mortages…..underwriters won’t back the notes because the governemnet will change banking regulations.

    A lot of folks I talk to say thing are going to get worse before they get better…..stay tuned.

  6. Toomanytaxes Avatar
    Toomanytaxes

    The trigger for the enormous run-up in housing prices might have been the extradinary efforts of the Federal Reserve to prevent the 9/11 shock from pushing the country into a huge recession. The extremely low interest rates, when coupled with the creative genius of the mortgage and real estate industries, fueled quite a wild ride. Gold_H2O is probably right in that we will see a return to upward movement in housing prices, but not for a while and on a much slower pace.

    Many people will suffer some financial pain, both big-time homebuyer and industry people. The biggest losers overall locally may be those who benefit by bigger and bigger local government. At least for a while, gone are the days when the Fairfax BoS can disguise a big tax bill with the statement that a tax cut was made. I was recently talking with a school board member about Gerry Connolly’s election year promise not to raise taxes. The school board member’s face showed true pain.

  7. Larry Gross Avatar
    Larry Gross

    I’m thinking… in terms of monetary policy two things:

    1. – anytime we have government policies that offer incentives for “investments” in some sectors… like housing … are their unintended consequences beyond the boom/bust cycles?

    Specifically , settlment patterns and commuting… “drive to qualify” mindsets

    2. – If all housing was a net expense and not considered a good “investment” – would more folks put their money into their pension plans… and HSAs?

    I think in my respects – the way “we” – the govt and us .. deal with housing – it’s the tail wagging the dog with respect to an otherwise nominal market economy.

  8. Ray Hyde Avatar
    Ray Hyde

    Come on, Larry. There is no government action or taking here.

    The government raised interest rates, anyone who borrowed befoer the raate changes still has what they bargained for. This is entirely different from our other conversations.

    If what they bargained for was a variable rate, then shame on them.

    It is not always bad to borrow against your home. I use a line of credit to help with major purchases, and I pay it down after each purchase. You just can’t go crazy with it, and you need to keep a good level of equity, and plenty of free cash flow.

  9. E M Risse Avatar
    E M Risse

    Larry’s 8:31 post is one of the best by a commentor in a long time at Bacon’s Rebellion.

    A house (and the dooryard and cluster where it exists) are great places to intest time and money to create a great life.

    A house is a poor place to invest for a monetary return, they have been for a long time, especially over the last 50 years.

    The only thing more risky than house investment is raw land for urban land uses. Far more lose than gain. The larger the R=X, the greater the risk.

    Those who hold out hope of cashing in at some time in the future keep trying to dream up arguments as to why someone should subsidize them, like building roads.

    EMR

  10. Ray Hyde Avatar
    Ray Hyde

    Well, you are right about monetary return. The house doesn’t throw off cash flow the way bonds do, or dividend paying stocks.

    But, like stocks, the real return comes when you sell, some call it speculating.

    I don’t know what planet you have been living on for the past fifty years, but my house investments have grown in equity more than 20 times as much as my stock holdings have, and I’ve done slightly better than the market, and that’s only in thirty years.

    They are in old established neighborhoods where there hasn’t been been a street or road built near any of them for close to fifty years, so I don’t see any subsidy there. A metro bus shows up at the corner once in while, may be that counts.

    The only real risk I have incurred is risk that was deliberately caused by my government, ostensibly on behalf of my peers, so count that as a negative subsidy, I guess.

    As for raw land, there wouldn’t be any risk if the government will allow you to do at least something with the land. After all, not all land uses are urban uses.

  11. adron_bh Avatar
    adron_bh

    Almost ALL Government involvement these days decrease our overall wealth <- re: the last comment. As for the house values dropping… called it, screamed it, another great example of irrational exuberance.

  12. Toomanytaxes Avatar
    Toomanytaxes

    I seem to recall that Fannie Mae recently released a report indicating that the national average return on one’s home for the last 25 years or so was less than 2% annually. I believe that the annual return in the D.C. area was closer to 5% over that period. Still, there’s a huge difference between 5% and 20%.

  13. Ray Hyde Avatar
    Ray Hyde

    I made an erroe in my previous estimates. Over the last 25 years my ROI on my Alexanderia and DC properties has worked out to almost 17% per year, inclusing the recent price drops. Not including taxes.

    Over the same period my stock market holdings have returned 11.5% per year, not including taxes.

    The Fannie Mae report is probably based on national averages. There are an awful lot of places out there that are not doing much compared to the host spots on the east and wst coasts and the southwest.

  14. Ray Hyde Avatar
    Ray Hyde

    Isn’t it strange that whenever we want the government to do something for us, we claim it is for the public benefit, and yet we seem to believe that “Almost ALL Government involvement these days decrease our overall wealth”?

  15. Anonymous Avatar
    Anonymous

    Any Return on Investment or Iternal Rate of Return calculation must include all costs, taxes, repairs, special assesments, everything.

    When that is done residential real estate make a little, raw land loses big. The only exceptons are windfalls that are usually based on prior knowledge of public investments but always “profits” are based on public investment.

    For a good investment try Rollex watches or something besides real estate.

  16. Ray Hyde Avatar
    Ray Hyde

    The figures I quoted included everything except taxes in order to keep them on an equal footing, for the sake of comparison.

    I haven’t paid any taxes on the stock market investments yet, for the most part. I have paid real estate taxes, but compared to the gains made, they are insignificant, and deductable.But the taxes on the gains made have not been paid on either one, yet.

    If I can beat 17% over the long term on Rolex watches, please explain.

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