Upscale urban real estate markets continue to be spared in the growing real estate downturn,according to this story in the Baltimore Sun. Some DC markets even continue to appreciate, the story reports. These are communities with high levels of gay, bohemian and creative class concentrations. The fact of the matter is that these neighborhoods are unique and authentic. They can’t be replicated with new construction. I’ve long said that housing prices are the best indicator of the real demand for place. My guess is that the “split” in the housing market will grow wider over time, as folks realize these kind of communities are not only great places to live but have characteristics that will “protect” their investment in the short as well as the long-run.
August 15th, 2007 at 9:52 am
The short take on this is an old investing maxim: “Flight to Quality”
This is consistent with the stories of mortgage problems and declining home values centered on those who could not afford homes at the inflated prices with traditional loans (e.g., 7-1 ARMs or 30-year fixed). This means both poor inner-city communities and middle-class mini-McMansion exburbia. So in the DC area, this means that both Anacostia and sprawling Loudoun County are among the hardest hit. Even, say, a 30-something Verizon engineer in Ashburn, VA making $80,000 a year will have trouble with an new 4,000-square-foot house supposedly worth $800,000 at one point (now probably worth $100,000 less). On the other hand, the 55-year-old lawyer or doctor in Bethesda probably bought his home 20 or more years ago, and the area has established it’s long-term reputation as a desirable location.
I do see this phenomenon more in bubble markets where inflated prices enticed many in either dodgy or too-new-to-be-established neighborhoods to get in over their heads. In moderately appreciating markets such as Texas or the Piedmont Southeast, most responsible middle-class and working-class people can own a home on a normal mortgage. I personally am appalled that a mostly vinyl-siding McMansion in the far reaches of Northern Virginia can still fetch over $500,000, yet a similar all-brick one in, say, exurban Charlotte be had for $300,000 or so. A lot of bubble-priced housing is now gradually “reverting to the mean” or at least becoming more properly valued.
August 15th, 2007 at 8:17 pm
Well I guess according to Richard Florida all be we need to do is move more gays into neighborhoods with declining home prices to boost their value which is a bunch of baloney. The truth is that all these upscale neighborhoods will be hit especially hard because alot of them hold these wall street finance wizards that got huge bonuses based on fraudulent CDOs, and mortgage backed securities. Everyone that does not have gold and silver coins or gold and silver stocks will be in real trouble because of the coming dollar collapse. When the world finds out that Americans can’t pay their mortgage because of Adjusting Mortgage rates combined with the offshoring of good paying jobs then the dollar will become worthless. It won’t take a majority either since massive 10 times and up leverage was used to buy these securities and a small default by homeowners will cause massive losses in hedge funds portfolios around the world causing a massive loss of confidence in America and American dollars.
August 17th, 2007 at 9:22 am
The subprime market is such as small percentage of the US mortgage/credit market that we are witnessing another irrational panic. This is not to say some people (homeowners, financial firms, mortgage brokers) are not going to feel pain, but this appears to be a short term flair that people are overreacting too… interest rates are likely to come down, UE is still low, corp profits are good… housing/credit markets will clearly recover and those markets in the post will begin to really move ahead again…
August 17th, 2007 at 10:17 pm
Subprime Mortgages are $700 billion
Alt-A, No Doc Loans are another $700-800 billion.
ARM , Adjustable Rate Mortages are a total of 2 trillion dollars that are set to reset this year
Don’t forget that these mortages were packed into securities and sold to hedge funds who used huge amount of borrowed money such as 10-20 times of their capital to buy these worthless mortgages. A small default of perhaps 5%-15% will cause a chain reaction of margin calls , defaults and bankruptcies.