Housing Slowdown

Having trouble selling your house? You're not alone. October real estate figures in the Washington area, one of the strongest housing markets in the nation, show a startling drop in home sales, as much as 28 percent.

Washington Post reporter Kirstin Downey was online at 1 p.m. Friday to hear about your own experiences and what you're seeing in your communities.

A transcript follows.

Downey has been a business reporter for more than 20 years, covering a wide range of subjects, from retailing to workplace issues to the economy.

She joined The Washington Post in 1988, covering real estate, and has witnessed, firsthand, several market cycles. She's also covered the boom in values in the '80s, when things went up, up, up, and tracked the market down, down, down when it fell in the early '90s, culiminating in the banking, savings and loan collapse and the subsequent taxpayer bailout of the nation's financial system.

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Silver Spring, Md.: I really feel for the couple in the lead of your story who are experiencing a $100K decline in value before they've even moved in. That's painful. However, I have utterly no sympathy for the speculators out there who are getting burned. You want to play that game, you take the risk. Our real estate market would be far more stable without them.

Kirstin Downey: Hello. We're having some technical difficulties here but we can see there's a lot of interest in the topic today, so we're going to go ahead and try to get started anyway.

Let's keep our fingers crossed.

Yes, a lot of people have questioned how much of a role real estate speculators have had in the recent runup in prices. By some estimates, up to a third of purchasers in new projects were actually investors rather than homeowners.

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Wheaton, Md.: In April, when my wife and I purchased our town home, the houses in our neighborhood were selling in a matter of days. Now the same homes that would turn over in a week are taking a month or longer. What's interesting though, is that they are generally getting the asking price which is still 5-10% more than we paid in April. This seems to be a good sign: housing prices won't be skyrocketing, but at least they don't seem to be set for a huge tumble. It seems its taking _longer_ to sell, but the prices don't seem to be falling, at least where I am.

Kirstin Downey: Generally speaking, that's what we found, too. There are more houses on the market, and they are taking longer to sell. Some prices have flattened or dipped. The big question is what will happen in new developments, where many homes are on the sale at the same time and the builder needs to sell them at a brisk pace.

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Silver Spring, Md.: Just an observation. While the increase in inventory and decline in sales is irrefutable, what I've been observing in Silver Spring at least, is a lot of homes being put on the market for 20-30% more than the previous comparable sale in their neighborhood. Then, when that crazy price doesn't attract buyers, they reduce and feed into the perception that prices are falling. Single family homes ,in contrast to condos and townhouses in the area, are still selling quickly at at appreciating prices, just not 20-30% in a matter of months, if not weeks.

Kirstin Downey: Yes, it seems that a lot of people rushed out and tried to get top dollar--overpricing their homes. Real estate agents have had a hard time getting some sellers to be realistic about what their houses are worth.

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Washington, D.C.: Just one word on this story from a young, broke person:

HALLELUJAH!!!!!!!

Kirstin Downey: Right! It's all a matter of perspective! There's no question the past few years have been scary for renters.

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Arlington, Va.: Hi Kristin,

I would like to know what is surprising about any of this? Asset markets are driven by fear and greed. This is as old as the hills. Always has been and always will be. Tulip bulbs, tech stocks, gold, Dutch East India Company. At some point prices rise too high. Sure there will always be the this time it is different crowd. But is hasn't been for 2000 years!

All you had to do is look at supply over the last several months, the sales trend too. As prices are highest more will be offered. Simple econ. If coffee where to hit $50 a pound I guarantee you the worldwide supply would soar. Always happens. In the 70s oil contiuned to go up even though OPEC ended the embargo. Of course supply and demand cought up and it dropped like a stone.

If you look at the stats this can't be neutral. I think a lot of the condoes will end up empty. Prices always go higher than we imagined and fall even faster than we thought they would. At this time where do you buy to be safe. Even if you hold long term who wants to buy near the top? Is China Town still a good place?

Kirstin Downey: A lot of condominiums are under construction--47,000 new units will come on line in the Washington area in the next three years, according to Delta Associates--but we're still having a lot of job growth. People need places to live. Nice houses or apartments don't stay empty for long, even in a real glut. More supply is likely to help ease the affordability problem.

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Herndon, Va.: Our house has been on the market in Herndon for about six weeks. We're aggressively priced and chasing the market down into winter. Any thoughts on whether to kill the listing to keep plugging along? We have lots of flexibility in that we haven't signed for another house. Thanks.

Kirstin Downey: By historic standards, six weeks isn't very long to wait. In a lot of the country, it takes two or three months to sell. It sounds like you are in a perfect position. After you sell, you'll be in good shape to go out and pick a home carefully that you really like, without any pressure. It's a lot more fun to be a buyer than it was six months ago.

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Logan Circle, DC: I first bought in Logan Circle in 1999 before the Whole Foods induced hysteria.

So to borrow from the Barbara Mandrell/George Jones song, "When Country Wasn't Cool" I was Logan Circle when Logan Circle wasn't cool.

Now I see new construction going for $600 per sq ft.

My question may be better posed to Carolyn Hax or Amy Joyce, but who are these buyers? Where do they work? And MOST importantly, who do they date?!

Kirstin Downey: You're right--some of these prices are jaw-dropping! Who can pay them? Well, there are some good-paying jobs in the area at law, technology and consulting firms, and even government jobs pay a lot better proportionately than they used to because federal workers get cost of living adjustments...But it's hard to tell if the people who have bought recently can really "afford" these places. About a third of the buyers (perhaps more) are buying with interest-only or other unusual loans that allow them to pay less now but leave them financially exposed if interest rates rise or home values fall.

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Vienna, Va.: Do you know what % decline this area observed in early 90s and for how long?

Kirstin Downey: That's a very good question. In many cases, prices declined but didn't plummet, mostly because people held on rather than admit the values had fallen that low. A lot of people couldn't afford to sell because the homes were worth less than they had paid, and they would have had to write a check to the bank at the closing table to escape. But over time, prices fell enough that people could buy a house in 1997 for the price condos had been selling for in 1990. Many condos lost one-third of their value.

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Fairfax, Va.: With price trends flattening or declining in some areas around DC and the immediate forecast of Fed interest rates rising into at least Jan. 06. How long do you think it would take before a serious decline in prices might take effect. I ask this as a potential first time homebuy who's current BARGAIN lease is going to expire at the end of march, but would like to give up the roommates and get out on his own.

Kirstin Downey: I hate to speculate on what might happen in the market. It's really a crap shoot.

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Centreville, Va.: I am scared out of my wits. My wife and I are first time buyers...just bought a 2 bedroom townhouse in Centreville for 375K. Way too much money for what we got, but that was the market and the advice that we received. Now other places inour neighborhood are going well below what we bought our place for. Are we in jeopardy of taking a major loss if we try to sell in two to three years or is it safe to say we will at least come out even? I almost feel as if we should get rid of it as soon as possible b/c interest rates are going up which in turn will continue to drop housing prices! What do you think? are we safe?

Kirstin Downey: Take a deep breath. Try not to worry. You can drive yourself crazy worrying about what might happen with prices. You're pretty much committed to the place you are now if houses are selling for less than your purchase price. So try to make the best of it. It's almost impossible to predict what might happen in the future, but the economy here is good and over time, sometimes over a fairly longish time, real estate has always appreciated.

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Silver Spring, Md.: Kirstin,

Alot of the people who are saying that prices will not fall are in the real estate business and have a vested interest. Keep the buyers coming. I believe as in all markets where prices go up to high and the demand drops that prices too will drop. Eevn in this wonderful DC housing market. The prices will not drop to the pre 2002/2003 level but definitely the pre 2005. Mark my words!!!!

Kirstin Downey: Yes, it seems like prices are retrenching--which is good news for people who have been priced out of the market. But it'll take real declines to help most moderate-income folks.

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Washington, D.C.: RE: Speculate/Crap Shoot

We all know it's a crap shoot. But those of us who are diving in the market for the first time are hoping you can give us some educated guesses. Are you unable to do this partially because a legal person there at the Post won't let you? Please, just give us some simple advice, even if you do have to preface it heavily with "don't take this as gospel truth"!

Thanks!

Kirstin Downey: I think the prices have been nuts, and that people who take out interest-only loans are putting themselves in danger.

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Rockville, Md.: I have definatly started noticing a slow down in my area--I am a 1st time buyer and have been looking for quite a while and have recently begun noticing sellers actually reducing prices!

I am in a bit of a nail biting position because a few weeks ago I signed a contract for a new condo (2007 delivery) in Bethesda. I am really nervous about prices actually falling for these types of new communities? Thoughts?

Kirstin Downey: Small deposit.

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Washington, DC: As a newish homeowner and native Washingtonian, I welcome the slowing of the market to a more stable and sensible pace. It seems that most of the cooling is happening in the middle to upper price ranges (300k and above). There is inventory in pleasant, safe, neighborhoods (e.g. Ft. Dupont Park, Deanwood, Twining, "greater" Hillcrest) and the neighborhoods are in an interesting situation. It seems competition is still strong because there are virtually no homes of that caliber (good condition, 3br, 2bath, w/some yard) for that price west of the Anacostia river. But we have never seen the selling-in-hours fervor that other "sexy" neighborhoods have, mainly because these neighborhoods are less gentrified and there is still a negative stigma for living East of the River (though its probably not as strong as it was in the 80's).

A little perspective... i bought my fully renovated, 3br, 2bath with basement end-unit near Ft. dupont Park for 210k in Aug 2004. Two houses in with virtually the same layout sold for 300k after around 2 weeks on the market last month.

Kirstin Downey: Thanks for your observations. During the most frenzied time in the recent real estate market, people were offering contracts with no contingencies, which meant they weren't getting places inspected before purchasing. Bad idea. This situation is going to be a lot better for a lot of people.

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Edgewater, Md.: The real estate article today did not address Anne Arundel County. Where can I find statistics for AA county? Do you suspect the chart for AA county is similar to PG county?Thank you.

Kirstin Downey: I believe the MRIS website has data on Anne Arundel County. You can find it on the web, and then look under market statistics.

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Vienna, Va.: What caused the decline in the early '90s (the recessions?) and are we nearing that same situation?

Kirstin Downey: It was a confluence of events. The economy soured and we stopped adding new jobs. Interest rates rose. There was overbuilding by developers. A lot of crooks got into the banking industry and got rich and made bad loans. The banking and savings and loan industry crashed. (Historically, the banking industry tanks about every two decades.) End result--Big taxpayer bailout and lot of homeowners lost money on their houses if they had to sell during that time period.

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NoVa: It seems a little too pat to me that your article (and the statisticians) lump Northern Virginia together as one unit. The new McMansion boom in Loudon County is a very different market than the one inside the beltway with Arlington and Alexandria.

Aren't there big differences?

Kirstin Downey: The Northern Virginia statistics include the inner suburbs of Arlington, Alexandria, Falls Church and Fairfax County. Loudoun and Prince William are compiled separately. The chart we ran with the story has the information county by county. We used the combined Northern Virginia numbers in the main story to save space.

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Washington, D.C.: We all knew it was coming. As with the internet bust the numbers are not supporting the increases. Also many investors have come to the region so that only added gas to the fire. There is a light at the end of the tunnel: the jobs are not going anywhere. This region arguably has the most stable economy in the country as proven by having growth during the recent recession. Also as far as real estate goes, it has grown on average 4% per year. It is only the risky loans and investments that get burned in the short run. So the lesson here is clear, don't buy something unless you are going to stick with it for at least five years. Make your house as being your home as a top priority, not just an investment.

Kirstin Downey: Good thing to remember.

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Washington, D.C.: I remember the 1990's only too well. I sold my home for $100K less than my neighbor did two years earlier. If only I had not sold that home - I would be looking at a much higher sales price now. What does this say??? Land is getting scarce, the population is growing and we all need housing. Yes, prices are high today and maybe they do need to adjust but if we think we have paid too much, just hold tight. A few years down the road we will be happy we made the decision to buy. Think Long Term!

Kirstin Downey: I lost a bucket of money in the early 1990s, too. My condo dropped $40,000 in value and it really hurt...But the house I bought in 1997 went up a lot--at least so far. Ha ha.

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Washington, D.C.: Yes, there are a lot of high-paying jobs, BUT do you think a lot of young people (under 35) have bought expensive condos or homes with risky loans without regard to the prospect of getting laid off or getting ill and being unable to work? I have a strong feeling we will see many defaults as well as many surplus condos and townhomes on the market within 18 months.

Kirstin Downey: It's happened before. Nothing new under the sun.

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NOVA: I want to agree with the poster from Silver Spring. We are told everything is fine be realtors, builders, and mortgage brokers.

Famed contrarian investor and hedge fund manager Jim Rogers arrived at Wall Street with $600 and retired at 37 "with more money than knew existed in the world."

Was asked recently: "... well Donald Trump says real estate is still a good investment. He replied, "well Donald Trump has a lot real estate to sell."

Kirstin Downey: Hmmm. And Trump lost a lot of money in real estate in the 1990s, too, as I recall.

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Washington, D.C.: I'm one of the so-called "problem people." I bought a condo with an interet only loan. I got a pre-construction price that was locked in for a long time due to delays, and I closed on my condo this summer. Hence, my condo is now worth about $175,000 over my purchase price, so I am holding on to it to avoid capitol gains. Still I do not want the value to tank. Is Penn Quarter still a good area?

Kirstin Downey: I think the District is really a fun place to live these days. If you have a lot of equity you can always sell. But I'm nervous about interest-only loans. You might consider inquiring about whether it is possible to lock in a fixed rate.

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Alexandria, Va.: To anyone who thinks the NOVA McMansions are the only ones slowing...

I have a cute condo with a patio for sale very inside the beltway in Alexandria. Units in my neighborhood are on the market now for 45-60 days. Some sellers are even offering closing incentives, which of course I'm not happy about.

I believe the speculators are dumping their units to get out of the market, causing everything to dip. Unfortunately for me, I'm trying to move out of the country and can't get rid of my unit.

Kirstin Downey: I'm interested in hearing more about your situation. There seems to be a good story in how investors are affecting the market now. Please email me at downeyk@washpost.com.

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Howard County, MD: My wife and I recently bought our first home in Howard County, cause it was all we could afford and are now paying for it in our commutes to DC. We noticed the previous owner bought the townhome for $115K less than what we were paying her for it 2 years ago. We just thought, that's the nature of the market. I only hear of the surrounding DC counties, what about other counties such as Howard, Frederick and even in Baltimore?

Kirstin Downey: The MRIS website has information on all those localities.

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Ballston, Arlington: Re: 47,000 new condo units

We have a 1940 row house in Ballston recently purchased for about the same price as a lot of new condos.

Do you see smaller houses being adversely affected by a glut of condos in the same area?

Kirstin Downey: Generally speaking, unique homes hold their value better than plain-vanilla run-of-the-mill places. Those row houses are cute and many are more charming than the new places being built.

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Arlington, VA: I seem to remember a story about London, recently in the post, going through a asimilar slowdown. I heard that once median housing prices were 8 times the median household income, they were no longer sustainable. Is this true? isn't this roughly were we are now?

Also what is your take on using positive equity towards luxury items such as vacations/cars etc,..

Kirstin Downey: I don't like to give investment advice. If I were a savvy money manager, I wouldn't be typing for a living. But after two decades watching the market, I'd say now is a good time to be conservative about protecting the equity in your home rather than diverting it to luxury purchases. As all these questions today attest, the market seems more uncertain to more people than it has in a long while.

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Upper Montgomery County: The Washington Post is interpreting the new data to mean that the housing market is dramatically retrenching --of course, this newspaper has been proclaiming an imminent downturn in the housing market for many months now. The article of this morning emphasizes the dramatic upsurge in inventory and the number of unsold homes throughout the region. The article even say prices are falling in some cases.

Yet according to the just-released MRIS figures, price appreciation from October of last year to this past October was just shy of 20 percent --and it's not taking any longer to sell a house than it did in October of 2004 (just 30 days). That would hardly qualify as a dramatic downturn in the market, in my opinion. Moreover, isn't the autumn a traditionally slow period in housing anyway, and wouldn't that fact complicate making trend conclusions? Might the building inventory and slow sales be more reflective of a seasonal lull than a 'pop' of the housing bubble?

I am skeptical of the Post's reporting on this........

Kirstin Downey: Please re-read the story and look at the appreciation chart that ran with it. You'll see that we included many of your points in it....But the basic fact is clear: The number of houses for sale in the Washington area is higher than it has been in more than six years. If you are a seller, that's bad news. If you are a buyer, it's good news.

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DC: Just an interesting psychological observation for the young woman who wondered who the well-heeled buyers are -- and who they date. When my middle-aged wife and I bought on Capitol Hill a year ago, I found it very interesting that my personal reaction -- and I don't consider myself judgmental at all -- to being up against apparent dual-income twentysomething couples as we looked at half-million dollar homes was, "Who are these people, and how can they afford 'starter homes' like this!"

I guess life just isn't fair, is it, Kirstin?

-Jon

Kirstin Downey: Nope! Sure isn't.

I've had such a good time with you today that we've gone a bit over time. Thanks so much for your interesting comments and questions. We'll be keeping an eye on this situation. If you are interested in talking about your recent or ongoing buying or selling experiences for future newspaper articles, please email me at downeyk@washpost.com. We'll be continuing to monitor the real estate market in coming months.

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Columbia, Md.: I have a brother, friend and two sister in-laws who are each making close to $1M (MILLION)a year as wholesalers of sub-prime (poor credit) mortgages. For your audience members the loan wholesalers sell the loans to the brokers who then stick it to harry homeowner. Because of the incredible ignorance that surrounds the closing process of home purchases the mortgage industry has pillaged the equity (refinance) and driven the prices up of homes everywhere. When will it stop? I am tired of being the broke family member with the moral clarity not to partake in such a blood sucking business. More a rant than a question but interested in your thoughts none the less.

Kirstin Downey: P.S. Would this person please contact me at downeyk@washpost.com?

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Sterling, Va: Yes, I had trouble selling my home for almost 6 months! So instead, we went the renting route. There were too many investors probably selling off their inventory, which caused panic selling among the neighborhood, and super price reductions for owners who had to sell because they had a 2nd home to close on in the near future. I think the buyers who did buy with these price reductions are lucky (always buy low, sell high!). It's a great neighborhood, you'd only know if you lived there. So maybe one day we'll move back in.

Kirstin Downey: I'd like to hear from you, too!

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