Thursday, August 26, 2010

The Housing Market in DC

So everyone in the news has been talking about how the latest numbers indicate that new home sales in the country have been on the decline and this is an indicator that the economic recovery of our nation is stalling. I don't know where many of these people come up with their ideas but one thing I can say for certain is that they likely drive around their areas wearing blinders because if they could only open their eyes and see, they'd immediately understand the reason why new home sales are declining and I am pretty certain it's something much simpler than what the media is making it out to be. Drive practically anywhere west on the Dulles Toll Road and you'll end up running into numerous signs that advertise new developments and neighborhoods that have model homes now open. If one ventures into that area they will find endless streets of new homes (townhomes, condos, etc.) vying for space in a fast disappearing landscape.

Why the reason for all the building? Likely because of the false buyers market that was created a few years ago when our government leaders urged everyone to invest in real estate because that was a sure sign of prosperity. Never mind that unlike in years past, homeowners actually had to cough up a lot of money for a downpayment and had to have firmly established credit to get a mortgage to help pay for a home, a few years ago you pretty much needed a face and you could get a mortgage. If you had a job (even if it only paid $10,000 a year) it seemed you could easily get approved to get a loan to buy a home worth millions rather than what you actually could afford. The end result was that people were buying homes left and right and figured that they could make money flipping properties even though they didn't really understand what flipping properties meant.

What this meant to developers and builders was that there was a clear demand for housing so they just went on a building spree and now it's almost as if the market continues to thrive because I've spoken with individuals who work for the counties in Northern Virginia where building was most rampant and they have indicated that building permits are continuously sought because builders still want to build more homes for a market that is saturated to the breaking point. While I understand the desire to continue building is likely helping keep a lot of people employed, don't these people (any of them) realize that they are not helping the market but rather hurting it? If I lived in the Ashburn area and decided to sell my two year old home, I would likely get little to nothing for it (relatively speaking) because there was brand new construction for a comparable price just a few feet away.

People aren't going to buy houses for some time to come and it doesn't have anything to do with the fact that the new homeowner tax credit is no longer in effect. It has to do with the fact that there are too many homes and not enough buyers. And it's likely that this fact will continue until such a point that the counties and developers realize that there isn't much point in continuing to create new housing if no one is going to buy it. I personally don't think the market will improve much until the building stabilizes (and eventually stops) and prices come down to more realistic levels. I mean while houses beyond Ashburn are certainly nice, I don't think I'd like to spend that much and drive fifty miles one way just to get to work. I don't think a lot of other people would either which is why houses out there aren't selling thus leading 'experts' to believe that the economic recovery is beginning to collapse.



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