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Why DC Real Estate is Doomed

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May 05, 2008 – Comments (7)

rent or buy inputs

Run the math, and the home doesn't even break even after 30 years. The only way it comes close if you jack up the annual home price appreciation to 5% (completely bogus), or dial back your after-tax investment return to 4% -- which some of us can get in our sleep. Even then, the home wouldn't break even for 10 years (5% home appreciation, 7% investment return) or 14 years (3.5% home appreciation, 4% investment return).

Prices have a long way to fall in this area. $700,000 doesn't get you much around here. 

To look at it another way -- making the huge assumption that our neighbors around here have $100,000 for down payments, which I doubt.

In order for them to have their house payment = to 40% of their income, they'd need to be pulling in $160,000 a year. In order to have it = a more reasonable 25%, they need to be hauling in $252,000 a year. That's to get a middle-of-the road home in this area.

I don't see any reason to be house shopping yet.

7 Comments – Post Your Own

#1) On May 05, 2008 at 10:16 PM, TDRH (99.68) wrote:

Hard to imagine 700,000 not buying much home, but I have seen the numbers, and do not doubt your assessment by any stretch.   Housing here is relatively much cheaper, but the market has the same problems with qualifying incomes and downpayment.   There will be a shift in STL as well, though not as much by comparison. 

The only thing that I miss really is the ability to itemize my deductions, but imagine that would be offset by maintenance.  My rent is only $635 here though and I am a mile from from Forest Park /STL Zoo.   Did you ever think of telecommuting?   You went to school here at Mizzou, imagine how much quicker your could retire with an extra $1200 dollars a month to invest?   Or for that matter for $700.000 you would at least be on the golf course.

 

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#2) On May 05, 2008 at 10:16 PM, TDRH (99.68) wrote:

Hard to imagine 700,000 not buying much home, but I have seen the numbers, and do not doubt your assessment by any stretch.   Housing here is relatively much cheaper, but the market has the same problems with qualifying incomes and downpayment.   There will be a shift in STL as well, though not as much by comparison. 

The only thing that I miss really is the ability to itemize my deductions, but imagine that would be offset by maintenance.  My rent is only $635 here though and I am a mile from from Forest Park /STL Zoo.   Did you ever think of telecommuting?   You went to school here at Mizzou, imagine how much quicker your could retire with an extra $1200 dollars a month to invest?   Or for that matter for $700.000 you would at least be on the golf course.

 

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#3) On May 05, 2008 at 10:40 PM, hondo928 (99.63) wrote:

"$700,000 doesn't get you much around here. " maybe not in Potomac, Kensington, Tysons or Alexandria but in a lot of suburbs and parts of the city real estate isn't that expensive.  To be honest the school systems suck for the most part. I personally graduated from Gonzaga a few years ago, and can say that most of my friends in public school didn't get anywhere close to the education.  Home sales have definatly slowed in the area, with purchases slowing even more, yeah the market probably isn't at a bottom, but a large number of jobs are supported by the government whether it's through the government directly or firms which provide services.  Sure prices have some room to fall, but I think demand has stayed up at the levels which it has because of the "security" in gov't jobs. And the Supply probably hasn't increased because people are afraid to take a loss, on their house which is in a lot of cases most if not all their wealth

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#4) On May 05, 2008 at 10:44 PM, SpaceMonkey01 (37.05) wrote:

As a DC denizen, you are depressing me. Prices are still high here...they probably have retraced to about the 2004 level by my very unscientific observation. I think the District itself and the very close NoVa burbs might hold on to their value a bit better, just due to proximity to work and play attractions and a very limited amount of land.

The far out burbs in Ashburn, Centerville, Stafford etc. are going to be hit hard I think. Cookie cutter McMansions...hmmm....let me see:

      --A still depreciating asset

       --McMansion proportion houses with a monthy energy bill        to match    

      --1 hour+ from work and 3.50+ a gal gas

      --10-15 min drive to grocery stores, restaurants, schools,           etc and 3.50+ a gal gas

      --Oh yeah and you live in the sticks. You are not too far from where the cannons still point north out there and Deliverance is thought by many to be an  family biography.

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#5) On May 05, 2008 at 11:09 PM, abitare (93.16) wrote:

DC has lots, and lots of jobs. The government has been hiring. Apartment here is $1300 for 700 square feet. The same apartment sells for $180-210k last year they were $250-$340k. Some people have lost 10-30% in a year. The maintenace fee is $600 per month.

I commute 13 miles there are 16 cranes throwing up new high rises just in view of the commute. 

My landlord said there are 50k new properties expected to be built in the DC area. That is a years worth of NEW inventory. 

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#6) On May 05, 2008 at 11:13 PM, jstran (79.58) wrote:

Roger, I'm in the military currently living in DC, but move around a lot.  One of the criteria I use is very similar to yours.  If the military BAH can cover the mortgage.  In our house in texas, and where we are moving to in GA it can.  In DC, definately not.  We're renting a 4 bedroom house close to work for about 1900, and the equivalent house to buy would easily be about 3000-3500.

 

  I don't know how much it will decline, as it might level off, but I don't see it appreciating much soon because of that wide spread you mention.  It is certainly out of balance.  Those markets that are out of balance still need to adjust. 

 

 

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#7) On May 06, 2008 at 9:40 AM, TMFBent (99.82) wrote:

The amazing thing is that where we are, about 15 miles from downtown DC, you would have to head out about another 10 miles before you'd get homes below $700,000 that you'd want to live in. Closer to us, there are 600 sq foot 1950s homes that haven't been cleaned up since they were built, and these are still asking $450,000. You'd basically need to knock them down. And you'd need to tolerate neighboring homes that are being rented to 4-5 people, with that many junk cars on the street, lawns, etc. In this same neighborhood, a few brave souls have actually knocked down the old eyesores and put up giant McMansions that go from lot line to lot line, and they're asking people to pay $1,000,000 plus for a 2,500 sq foot home next to the abovementioned junk cars.

This area still has some severe price distortions, even though out in the sticks, the prices are dropping like rocks off the overpass. We know someone who just moved out there from closer in, and now her commute is an hour each way instead of 20 minutes. I doubt she did the math on gasoline every month, but I'm sure it adds a few hundred bucks to the real cost of the home. And, she gets to wake up at 5 a.m. every day instead of 6, and get home an hour later.

They're still building like crazy right here next to Fool HQ, trying to sell 1,000 sq foot condos for $700,000 and up. But you see more and more of them throwing out "now renting" signs.

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