A post card came in the mail, from a Keller-Williams agent. (Is it just my imagination or have they taken over the market lately?) It was about the Gary house, down the street from me.
The asking price is $334,900.
I remember the Garys, from back in the day. Nice people. Salt of the earth. He was a deacon at the church. She loved him desperately. The mantle was already filled with pictures of grandchildren when I met them, in the early 1980s. I went there regularly for block meetings. They said we were crazy to pay $49,000 for our house.
Mr. Gary passed away in the late 1990s. (God rest his soul.) She finally moved out with some of those grandchildren, a few years later.
They had gotten an unbelievable offer.
The seller this time gave her that offer, which doubled property taxes all over the block. Now they’re looking for an unbelievable profit. They might get it.
It’s ironic that FNMA (Fannie Mae) and FHMC (Freddie Mac), which were created to make housing affordable, have in the last years done just the opposite. But food is energy, and too much obesity, I guess.
The problem is that Fannie and Freddie buy anything. As a result there’s no longer any risk in mortgage lending. The banker moves the paper to the government, which turns it into a security. Everyone takes a fee. All the incentives are one-way.
So you get 40 year mortgages, you get adjustable rate mortgages, you get interest-only mortgages, you get adjustable rate interest only mortgages. These were fine for investors, who could pay off called loans, but for ordinary people it leaves you one pink slip or one rate hike away from bankruptcy.
And you’ve gotta do it. The price of housing is tied to the price of money, and the availability of loans. With the spigots turned on high, a conservative buyer has as much chance of closing as a value investor chasing Google.
We’ve had bubbles before. Some are old enough to remember 1974, the last time Atlanta housing crashed. It stayed crashed for many years. But most aren’t old enough to remember that.
So the bubble gets bigger and bigger and bigger. Prices go only one way. It ends when everyone’s in the game, when there are no more buyers, or when the price of money shoots up, as it might with this $2.50/gallon gasoline.
Until then, $335,000 for a three bedroom, two bath in Kirkwood is just the price.
Dana Blankenhorn has been a business journalist for over 25 years and has covered the online world professionally since 1985. He founded the "Interactive Age Daily" for CMP Media, and has written for the Chicago Tribune, Advertising Age, and dozens of other publications over the years.
1. Jon Lowder on August 15, 2005 12:05 PM writes...
I was back in DC last month (moved to Winston-Salem, NC one year ago) and drove by the first place my wife and I bought. It was a three bedroom, 2 1/2 bath townhouse built in 1974 and located outside the beltway (not an ideal location). In 1992 we paid about 137K for it. It depreciated for about five years (we had to rent it out at a loss for a couple of years after we moved) and then it started riding the real estate wave in the late 90s. We sold it in 2001 for what we thought was a tidy sum (still well under 200k), and I remember wanting to do it fast before everyone woke up and figured out that real estate was over valued. Cut to this summer and the same town house is on the market for over 400k.
I don't think bubble describes it...how about blimp?
Permalink to Comment2. djp420 on August 15, 2005 12:24 PM writes...
A person such as myself in my early to mid 30's...what a difficult time thinking of buying the tiniest of apartments in New York City. I cannot believe how much real estate is. My parents were 26 when they bought the family home in 1970. A three bedroom 2 story "A" frame house; raised my brother and I while my father worked one job and my mother played house wife.
I am a college grad and went on to grad school. I work 2 jobs and cannot even fathom a down payment. Where does all this money come from and how did my parents do it on ONE income. I asked my father and all he can say is "hard work son." Well I have the hard work part down but even if I were to make 50k annually it's spent on rent and living expenses.
The point that peaked my interest in your article was when you mentioned the market and it's strength which is based on buyers. I'm sure I am not the only person caught in this cycle but if I were to muster a down payment and the bubble bursts...? Most of my peers unless assisted by a family member is in the same boat as myself. How do you get ahead? My inner voice says wait for the bubble to burst and hopefully I would've saved enough to get something cheap. It may sound silly but I have to be in NYC due the nature of my work. Any advice?
Permalink to Comment3. DCguy on August 15, 2005 06:27 PM writes...
Housing prices on Capitol Hill have almost tripled in 5 years while the population of Washington, DC has fallen...*pop*
Permalink to Comment4. DC on August 16, 2005 11:17 AM writes...
thats such a misleading comment. sure the overall population has fallen but the population desiring to livein capitol hill has increased significantly.
if you lived in the area you would see how there are tons more places to eat drink and recreate as the city reawakens.
misleading stat alert!
Permalink to Comment5. steve on August 16, 2005 10:26 PM writes...
Here's why there will be a pop in some areas and a fizzle in others.
POP Highly leveraged buyers with adjustable interest only mortgages above 500k will find themselves with a payment and property taxes that are impossible to make. That is when interest rates rise back to 6 or 7 percent.
Most people haven't thought about the property taxes or considered the market may not continue to climb. The biggest mistake is when the market becomes flooded with sellers trying to dump their houses because their payments have tripled and they are 2 years behind on the property taxes.
Most of them never intended to stay in the houses they bought. They figured they'd flip them after they doubled again in the next few years therby creating a flood of houses on the market at the same time.
POP
Fizzle Other areas will see a continued rise in rich immigrants that have cash and are willing to pay any price for a slice of American Real Estate Pie. So prices will remain steady but, I doubt they will decline much. California and Newyork.
Permalink to CommentThis is bad news for the up and coming middle amercians.
Solution. Buy in an area that has horrible weather or where nobody wants to live.
The price is always affordable. Example.
Minot North Dakota or the like.
6. Joe on August 20, 2005 09:39 AM writes...
Even CA and NY can't escape from the bubble! They ARE THE BUBBLES! Whatever goes up must come down.
Permalink to Comment7. Frank Pecarich on August 20, 2005 02:23 PM writes...
There are people in the news reporting business who are busy trying to find or create a "fear factor" in the real estate investment activity. It looks like the Wall Street Journal on last Wednesday pulled all the reporters off the bench and told them to "get out there and make news" given all the "boom" stories in the issue. It apparently was a "slow news day".
Permalink to CommentThere are many reasons why the real estate market in general is rising in value, particularly in high value areas such as the California coastline where I live. They include:
1. Real estate is a "hard asset" and is becoming "commodizied" as an investment. Commodities are often run up in value when equities and other investment options are not perceived as having value.
2. Real estate in certain high value places such as California, is increasingly an internationally owned asset. There are more and more properties being purchased as second and third homes by residents from other countries. Globalization is having an effect on the United States realty market.
3. Investors have no better place to put their money for growth. Many believe that the DOW has not capitulated and the "retail" client in equities is but a shadow of itself compared to 5 years ago. Most retail investors have gone to the sidelines and are investing in income producing bonds, etc. The reason we have the 10 year note not reacting to the Greenspan interest rate hikes is that the bond investor does not believe Greenspan's rosy scenario for the future. Investors trust the "hard asset quality" of a good, well-located piece of real estate more than the actions of the Fed.
There are other reasons for this situation of high real estate activity and prices but some reporters are pounding away at something that doesn't exist. Maybe it's wishful thinking on their part because I'm sure newspaper reporters are left out in the cold in this market given their salaries.
Frank Pecarich
Ventura, California
8. Frank Pecarich on August 20, 2005 02:24 PM writes...
There are people in the news reporting business who are busy trying to find or create a "fear factor" in the real estate investment activity. It looks like the Wall Street Journal on last Wednesday pulled all the reporters off the bench and told them to "get out there and make news" given all the "boom" stories in the issue. It apparently was a "slow news day".
Permalink to CommentThere are many reasons why the real estate market in general is rising in value, particularly in high value areas such as the California coastline where I live. They include:
1. Real estate is a "hard asset" and is becoming "commodizied" as an investment. Commodities are often run up in value when equities and other investment options are not perceived as having value.
2. Real estate in certain high value places such as California, is increasingly an internationally owned asset. There are more and more properties being purchased as second and third homes by residents from other countries. Globalization is having an effect on the United States realty market.
3. Investors have no better place to put their money for growth. Many believe that the DOW has not capitulated and the "retail" client in equities is but a shadow of itself compared to 5 years ago. Most retail investors have gone to the sidelines and are investing in income producing bonds, etc. The reason we have the 10 year note not reacting to the Greenspan interest rate hikes is that the bond investor does not believe Greenspan's rosy scenario for the future. Investors trust the "hard asset quality" of a good, well-located piece of real estate more than the actions of the Fed.
There are other reasons for this situation of high real estate activity and prices but some reporters are pounding away at something that doesn't exist. Maybe it's wishful thinking on their part because I'm sure newspaper reporters are left out in the cold in this market given their salaries.
Frank Pecarich
Ventura, California
9. Nate on August 20, 2005 02:44 PM writes...
Frank and Joe:
Permalink to CommentGo easy on the submit button guys; you only need to press it once.