Thursday, April 08, 2010

Washington DC Re-Busting!

Looking at the latest Radar Logic home price data it’s safe to say that Washington DC home prices will very soon break below the most recent low set in March of 2009.

Ironically, the trends in the Washington DC market probably best represent the dynamics instigated by the government’s tax-gimmicks, quantitative easing measures, foreclosure mitigation and mortgage sponsorship.

Yet, even with all the market meddling, prices are clearly headed back for a strike at the low dropping 9.87% on a year-over-year bases and a whopping 38% since the peak in 2006.

How many unwitting buyers were duped into locking in a “housing bottom” home purchase only to now find that the government’s incentives were dangled out over an abyss of deflation?

Make no mistake, this is a major event as the Washington DC area is one of the country’s most affluent metro housing markets and was not overwrought with overbuilding.

9 comments:

  1. Anonymous4:11 PM

    Can you reconcile that with Case Shiller (DC) which also bottomed in March 09? According to CS, the winter 2010 decline is so mild that prices are already up YOY, and look to be up 5 or 6% (best guess) when the March 2010 results come in.

    Even worse, for people like me (with their ear to the ground), I can tell you that in the parts of DC I am looking, prices are up a good 5-10% over last year, and being snapped up left and right.

    Dont get me wrong, I wish that report was true (or perhaps representative) of whats going on. But from what I can tell, it just looks very very off.

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  2. David5:36 PM

    Anon - let me guess, you are looking in Northern Virginia arent you?

    Its true, N. VA is definitely on the move up. And sadly, its not just the low end stuff, either, its the close in N. Arlington, Vienna places too - the ones that hardly got hit at all in the first place. Frustrating I know.

    As to the discrepancy between Case Shiller & Core logic, the only thing I can think of is that they measure different areas. While N. VA is looking good, DC proper looks stagnate at best, and Maryland is simply in the toilet. Thus, if Core Logic looks more at the MD side, while Case Shiller looks more heavily to the VA side, that might explain it.

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  3. Anon and David,

    One thing to consider when looking at this data is that, on the whole, this series is really telling us that prices are back to late 2003 early 2004 levels.

    I think that is a bit more realistic then getting stuck on the 38% price decline.

    Remember, the Radar Logic series (this is actually not the Core Logic... that a different vendor) strive to show non-adjusted daily data... Radar Logic wants to demonstrator the exact daily spot price of residential real estate per square foot so they don't employ any smoothing.

    This makes the Radar Logic data much more "literal" then the Case-Shiller data which is a smoothed 3-month rolling average.

    Case-Shiller is trying to demonstrate the overall trend while Radar Logic shows the exact price movement.

    Also, if you look at the Case-Shiller data (use blytic search for case shiller) for Washington DC you will see that all three seasonally adjusted tiers (low mid high) suggest that prices are back at 2003-2004 levels.

    So that's really all the data is saying... prices came off the 2006-2007 peak and fell back to 2003-2004 levels which I think is actually pretty accurate... for Boston its really exactly what has happened.... not a cataclysmic plunge but a pretty steady decline.

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  4. Anonymous7:40 AM

    "So that's really all the data is saying... prices came off the 2006-2007 peak and fell back to 2003-2004 levels which I think is actually pretty accurate... for Boston its really exactly what has happened.... not a cataclysmic plunge but a pretty steady decline."

    I agree. However, I guess im getting stuck on the semantics of this article. Radar Logic does indeed suggest it is "re-bursting" from its 2004 levels. Case Shiller does not.

    Which one is correct?

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  5. Anon,

    The Radar Logic series is likely giving you the more accurate picture.

    I would expect that the CSI will trend down a bit for the next 3+ releases giving you a smoothed slope down that is more or less equivalent to the Radar Logic data.

    Since CSI smooths you need to wait a 2 - 3 release for the CSI to truly reflect the changes indicated by the Radar Logic series.

    I tend to use the Radar Logic data more now since I like to see the true non-seasonally adjusted non-smoothed values.

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  6. Dagger10:52 PM

    In general would you say that the cities that built like crazy during the boom are the ones that deflated fastest, while places that built less but still showed significant price appreciation have not fallen back as far?

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  7. Dagger,

    Definitely... though the only caveat is that although these cities (Boston, NY, Washington, etc) were unable to flood their markets with supply of condos and singles like Miami, Phoenix and Las Vegas, there was quite a bit of rehabbing and re-development so there still are opportunities for over supply but just magnitudes less severe.

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  8. Dagger1:15 PM

    Then you could argue that places like NY are never going to fall back and may have already bottomed. In Miami money pored into new supply, pretty much guaranteeing a correction, and probably an overshoot. But in NY money pored into improving existing stock, which means the sq ft really are more valuable and higher prices are not entirely bubble.

    So if I see Las Vegas falling back to 1998 prices it doesn't mean I should expect Boston to ever get that low.

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  9. Dagger,

    I suppose that could be true.. I have been looking to the price-income ratio as a good guideline as well but I think its safe to say that Boston, NY and Washington DC don't really have to correct as dramatically as Phoenix and Las Vagas.

    They didn't experience as ridiculous a runup but still Boston metro housing is too costly given the regional income so I would expect prices to bottom out only when there is a good match between home costs and incomes.

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