Loudoun’s Magic Number: 2004

magic-hat.JPGDuring my latest past sales review for the 20176 zip, I started noticing that not all recent sellers who bought their properties in the past few years are losing money these days (although it sure does feel like it). In fact, some are even making money, albeit relatively small amounts. Just who are those lucky people? Anyone who bought in 2004 or before, and they’re seeing an average annual increase of between 3% and 4%. 

As with everything in life, there are a few exceptions to this rule. But for the most part, anytime I clicked on a sales record and noticed a yearly appreciation percentage instead of a depreciation percentage, it was for a property last sold in 2004. That would make sense in light of the fact that the market here peaked in 2005, but I guess it’s interesting for me to see it in such cold, hard numbers. It’s so…literal. 

What does this mean for 2008’s buyers and sellers? Sorry to sound like a broken record, but if you bought in or after 2005 and you don’t have to sell your house, you’re better off taking it off the market and trying again in another year or so*. Not only will you be doing yourself a favor, you’ll also be doing your bit for the economy by removing a property from an already overloaded inventory. If you’re a buyer, investigate 2004 prices for the properties you’re interested in and their comps, then increase that by 3% to 4% over the past 4 years, and you might have a good ballpark figure for current value. I know that might seem a little farfetched, but fair market value is so volatile these days that it certainly wouldn’t hurt to look at it from a different perspective. And besides, what have you got to lose? 

*Unless the new President does something drastically stupid immediately after being sworn into office, or there is some other catastrophe, I think the market will pick up in spring 2009 in response to the new political environment. That’s just my current pet theory.

  • yup

    Kira, I’ve noticed a similar trend in my searches — I think I even see a trend where the first half of 2004 was “good” for current sellers, while in late 2004 the prices were trending a bit high to give them that small return today. That could just be the data set I’m looking at.

    I can’t agree with you that a new president will suddenly usher in a change in the economy. Economic changes take time, and a change noticeable immediately after the turnover could reasonably be credited to the current occupant.

  • http://washingtondc.redfin.com/blog/2008/05/loudouns_magic_number_2004.html Kira

    You’re right, prices were definitely higher at the end of 2004 as opposed to at the beginning. But I’d say the majority of 2004 sales will still see a positive return. For instance, the people who sold us our house paid 555K for it in Dec. 2004 (built it new), but we could probably sell it for 625k today. That’s less than what I paid for it, but my mortgage is way less than that, so I’d still see a return. The interesting thing about 2004 is that was in the middle of Loudoun’s housing boom, and where you started to really see a big difference in prices because of the way new home builders structure the selling model. Also, some buyers really started to drop money on builder upgrades, which means that there could be a $100,000 price difference for the exact same model house.

    As for my theory…well, nearly everyone in the real estate game has one, and we are all just guessing. For the record, I don’t think a new President will suddently usher in a change in the economy; I think the qualified buyers who are sitting on the sidelines right now might feel more comfortable buying, and that’s what I was referring to. I happen to know several very qualified potential buyers who are renting in my community right now and who are waiting to buy – not because of the economy, but because they’re not sure how much further prices are going to fall. I think Loudoun’s problem has way less to do with the economy than it does with the fact that there are too many houses on the market, homes are still too overpriced, and because we are further out from DC. I think part of the reason the market is stagnant is because consumer confidence is so low, and I think that is because our friends in DC took too long to act when the market started tanking. When you look at it through that lens, it is possible that simply getting fresh blood in the White House will help people feel more confident making that sort of investment. And I don’t want to get any more political than I already have, so that’s all I have to say about that. :) Except I will say that like everyone else, my theory is pure conjecture, likely to be wrong, and full of holes. That’s why I called it my “pet” theory – it might make sense only to me!

    Thank you for stopping by and sharing your insights. I’m curious – when do you think the market will turn around?

  • yup

    I’m a bit more of a pessimist. I think that we won’t see a return to market equilibrium until after 2010, possibly as late as 2012 (and I admittedly am relying on analyses done by others). The American people apparently have more debt than they can afford (but hey, we were assured it was our patriotic duty…and that’s as political as I’ll get). That includes debt wrapped up in their houses.

    I’ve culled through land records and found that, for the sample I was looking at, the period 2002-2006 saw a number of 125% refis along with widespread use of HELOCs. A few of the houses I’ve been watching have been on the market since last summer, and their ask price has not come down with the market (despite being up to twice or more what was paid for the house in the early part of this decade). The reason is that they have outstanding HELOCs in addition to refinanced mortgages which are worth far more than they paid for the house.

    Thanks for sharing your insights on Redfin. Ciao!

  • http://washingtondc.redfin.com/blog/category/Loudoun_county Kira

    Hi again,

    Nearly *everyone* is more pessimistic than I am, so you are definitely not alone there. I am basing my “Pollyanna” outlook on the fact that a lot of the foreclosures have been “cleared out” and there are very few short sales left (at least, in the communities I cover, and esp. in my subdivision, Lansdowne). In Lansdowne, for instance, all of the single families in the $400s are gone, and there are only 3 left in the upper $500s (just one of which is bank-owned). There hav been several homes that have sold within a few weeks of being on the market as well, but as always, the catch is that they were gussied up for sale and were priced appropriately. Interestingly enough, being priced appropriately doesn’t actually mean dirt cheap; one of the properties sold was listed at $950k, one was listed at $734k, and one was in the mid-to high-$600s (it sold so fast I can’t remember the exact price).

    I completely agree with you about the HELOCs and debt situation. We bought in 2006 and were lucky to have a big enough down payment that we would still walk away with some money if we had to sell (even with a HELOC), but we would not walk away with what we paid for it. I do feel for those that are stuck, but they actually only make things worse for themselves by overpricing their homes. It’s an understandably tough situation.

    Thank YOU for YOUR insights. I know you’ve posted here before, and I appreciate your comments. I could talk about this stuff all day, and it’s a pleasure to discuss it with someone who studies it like I do. Also, my friends and family are grateful I’m no longer boring them with all my real estate talk. :)

    Have a great day, and come back soon!

  • http://washingtondc.redfin.com/blog/author/kira.mayrides kira mayrides

    Ooops, I dropped a bit of a thread there. In the first para, when I was talking about the foreclosures clearing out, what I didn’t say was that I know there are more to come but the prices at which most are selling (in the $500s) is what gives me heart. Even though they’re new, the foreclosures in Loudoun are like foreclosures everywhere else in the sense that they’ve been abandoned and are not in the best shape. So in terms of pricing, I think we’ve almost completed the price discovery process, which means there is not too much further to fall. Once buyers realize that, they’ll start buying again. I really do believe that most of Loudoun’s problem is price-discovery driven, not economy-driven (the exception is Sterling).

    Also, I forgot to ask – where exactly are you looking?

  • yup

    Originally we were looking at anywhere commuting distance from DC, including Norva and MD. Now our orders have changed, so we’re looking solely in the Baltimore-Washington corridor.

  • http://washingtondc.redfin.com/blog/category/Loudoun_county Kira

    Be sure to keep checking back with the DC blog, because we plan to add greater coverage in DC and MD, including Baltimore. Good luck to you!

  • jim mayrides

    actually, your comments and analysis are interesting and provide us up here with some good insight. Hopefully, a change in the white house will augur well for everything and everyone.