Nine(!)-year supply of Condos on D.C. Market:

N.Y. Times: "At the end of 2006, 24,200 units were on the market in the Washington area, up from 13,000 at the start of 2005. Sales have slowed to 663 in the fourth quarter of 2006 from 3,520 in the first quarter of 2005, according to Delta Associates." OTOH, sales of single family homes seem to be picking up a bit, at least in the inner suburbs. Because condos, townhouses, and single-family homes are at least to some degrees substitutes, such a disconnect won't last long.

joe (mail):
Am i doing my math wrong? 24,200 units divided by 663 units sold in the 4th quarter leads to 36.5 quarters of supply. this is 9 years, not 3.
1.23.2007 10:14am
DavidBernstein (mail):
Whoops, corrected it.
1.23.2007 10:30am

such a disconnect won't last long.

And you have been predicting this since when?
1.23.2007 10:46am
DavidBernstein (mail):
I've been predicting a massive slowdown in the housing market, with condos the first to fall, and to fall the most. So far, so "good." But the disconnect could involve a pickup in condos, a further slowdown in houses, or both; but it would be very unusual to have a basically dead condo market and a reasonably robust house market for any length of time.
1.23.2007 11:33am
I am to some degree pleased that Professor Bernstein seems to be admitting that the Arlington SFH market, especially in the Metro-walkable areas, has not really seen any value declines (to be sure, some stupid asking prices have been reduced, but that's not the same thing). Though I must admit that I don't see the connection between a cookie-cutter 350K Ballston condo and the $1M + houses that are becoming more prevalent in Lyon Park and Lyon Village.
1.23.2007 12:07pm
Rich B. (mail):
Isn't there a real estate "season", usually described as the Spring and Summer (2nd and 3rd quarters)? That sales plumetted in the winter doesn't mean that there is a nine-year supply.
1.23.2007 12:23pm
Whoa, I need new glasses. I read it at first as "9 year supply of condoms" and thought no wonder why Washington is so uptight...
1.23.2007 12:29pm
Shake-N-Bake (www):
Rich, he's comparing numbers from 4th quarter to a 1st quarter, which I believe are reasonable to compare.
1.23.2007 12:34pm
I'm curious as to the breakout of new vs. used.

The numbers for new houses are deceptive. Where I live house prices have remained steady while the price of condos has cratered. But what the numbers don't tell you is developers are providing lots of incentives to maintain the price. The house you buy this year might cost the same as last, but now the kitchen has granite countertops and the entryway has Italian marble tile.

They're also including cash-back incentives. For some reason the realtors don't include that in the selling price.
1.23.2007 1:11pm
Bruce Hayden (mail) (www):
I think though that you need to look at the historic sales rate too. It is possible that there are extenuating circumstances why that has dropped so significantly.

I say this having done this sort of thing in the mid 1970s for someone who built condos in Steamboat Springs, CO. I found a five year supply, all built one summer, based on the historical sales rates. And, from that, I suggested putting mortgages on the units and renting them long term for four or so years. On schedule, somewhere around 4 or 5 years later, the oversupply dried up, condos almost doubled in price in one year, and they were able to get their money out (they had been selling for less than the build cost for most of that time).

So, if you own a condo in that area, you might think seriously about renting it long term for a couple of years, if that is feasible for you. All these oversupplies eventually dry up, and property values will rebound. It is just a question of time, and whether you can survive it.
1.23.2007 1:24pm
Michael Wade (mail) (www):
Because condos, townhouses, and single-family homes are at least to some degrees substitutes, such a disconnect won't last long.

Really? Try fitting a family of four into a condo. Heck, most of the SFH's for sale are only two or three BR, sometimes without a true master bedroom (or one that isn't much bigger that 12 x 13). There are only so many people (read "sans kids") who are willing to live in a brick rambler that, even if it has been updated, isn't going to be very improvable.

Even if the condo market suffers, that does not indicate that the SFH market will do so. The DC area still has one of the hottest job markets, and some of the most highly paid workers in the country. As long as jobs and people continue to move into the area, the housing market will continue to grow, albeit with an ebb and flow.
1.23.2007 1:46pm
Hattio (mail):
Mongoose. Yeah, I read it that way too. Wasn't going to be the first to admit it though....
1.23.2007 1:54pm
You have been predicting the collapse of the housing market since spring of 2004. As you finish out your third year of this obsession, has it occurred to you that you will not see even 2004 prices with the historic low interest rates then available, well, ever?

As much as your predictions of a collapse have been mildly vindicated by this year's slowdown, you lost this game. You would be much better off if you had bought back in 2004.

Also: condos = single family? Crack?
1.23.2007 2:16pm
As Roseanne Rosannadanna used to say on SNL, never mind....
1.23.2007 2:36pm
jallgor (mail):
It's interesting how different real estate markets can be.
I wish I was more technically savy so I could link to the pdf I have of Corcoran's 4th Quarter market report. Some highlight are an increase in listing Q4 05 to Q4 2006 of about 8500 to 10,000.
An average price increase of $1.197 million to $1.218 million. Price per square foot increased from $992 to $1034. The report contains a ton of other data points and breaks out condos, co-ops, townhouses and give neighborhood info too. The summary is that NYC real estate continues to increase in value but more modestly than in prior years. This data is just for Manahttan.

DJR - I made similar argument to DB in a post some time ago. I think he actually announced that he would not enter the "overheated" housing market even earlier than spring 2004 but I can't remember. He challenged me on the date one time and i had to go back and find his original post. It was a pain. I recall he announced it not long after I bought an apt. in Brooklyn. Since that time, the value of my apt. in Brooklyn nearly tripled. I refinanced for a larger mortgage, took out the xtra cash and bought a second larger place to live in while I rented out the old apt. for an amt. that completely covered my costs of ownership. A couple years later I sold the larger place I was living in and bought an even larger place in Manhattan. In 5 years I turned a $26,000 down payment into about 1.6 million cash in the bank (so that's not counting the equity I might have in the unsold rental apt. or in the apt. I currently live in). I did this without ever putting myself at any substantial financial risk and without ever speculating or flipping apts. Do I think David made a mistake and do I chuckle at his housing market posts? You bet.
1.23.2007 2:58pm
I think there are some serious problems with the idea that 24,200 condos were on the market at the end of 2006. The MLS showed just under 4,000 being listed, so where do the other 20,000 come from? Can there really be 20,000 condos for sale that aren't listed on MLS?

I was amused a couple of weeks ago that the local paper had an article extolling the greatness of these $1.2 million 2BR condos in McLean. Can anyone really be dumb enough to buy one of those?
1.23.2007 2:59pm
Sometimes I wonder if Dave is "tooskinnee" in the Craigslist housing forum. =D
1.23.2007 3:01pm
hey (mail):
I love how everyone hates DB, on everything he posts. I haven't noticed if it's the same people, or if its different groups that are regularly irked by different things. Keep it up DB!

As to "you can't raise a fam in a condo". Uh, tell that to people who live in Manhattan. You'd also need to quantify that "condo". Lots of 2 bedrooms around, some 3s, that would be perfectly easy to raise a family in. It all depends on the square footage and your expectations.

If you've got suburban expectations, then no it isn't, but if you're priced out of suburbia, or can't make the commute work from an area you can afford, then the answer's of course you can. Further, DB explicitly mentioned they're only somewhat substituble, rather than perfectly transferable. Not perfectly, but they are, especially when you take an economist's definition of substitute.

The housing bulls forget that housing markets take a LONG time to move down, and a long time to go back up. A substantial amount of the downward movement in prices comes from relative price change as inflation keeps on in the general economy while prices stay flat or are only slightly down.

DB has been right, but too early, just like tech bears in 98 and 99. This is more like April or May 2000. Still a long way to fall, and it is likely that DB's decision to stay out of the market in 2004 will be vindicated, especially if he made alternate use of his money.

Housing market typically sees sales dry up as prices plateau and begin to drop. People would rather hold on than eat the loss, since it's their major investment, and it's a much slower market than stocks (you see similar motion patterns in stocks, though there is less emotional investment in a stock than a house). Then things poke around at a low level as sales stay flat or drop, where people only sell if they have to and the move up market is restricted to people who bought before the run up of after the fall.

I've seen this pattern in several markets. Late 80s or early 90s were a peak, followed by a macro induced crash (macro for the region, such as aerospace/defence cutbacks hampering the Southern California housing market) for 5-10 years. Economy comes back and a few years of healthy growth combined with long term stable and low interest rates sees the market pick up. It has happened in London, LA, Toronto, NYC, etc. Again and again. It is happening in DC, LV, Phoenix, Miami... Telling yourself that it isn't happening and that DB is an idiot might be psychologically comforting but won't be truly useful.
1.23.2007 3:16pm
hey -

Psychologically comforting? I think you are defending the pot by calling the kettle black. It's not so much hate of DB for me as it is disgust at the sheer obvious self-stroking evident in these posts.

DB decided years ago to stay out of the market and very publicly announced that he thought it was headed for a serious crash. If that were all, fine. Nobody can be expected to be right all of the time.

But DB has so clearly displayed his insecurity about his decision over these years. He constantly posted about the demise of the housing market, long before there were even real signs of a slowdown. Every time a news outlet used the word "bubble," or printed a news story about how it's harder to sell now, he gleefully linked to the story, citing more evidence that he is right not to be in the market. I don't think he is an idiot. He is simply an insecure blowhard who needs to constantly validate himself even when wrong.
1.23.2007 3:42pm
Michael Wade (mail) (www):
As to "you can't raise a fam in a condo". Uh, tell that to people who live in Manhattan.

Which would make a lot of sense if DB was talking about Manhattan. Since he is referring to the DC market, Manhattan (and the remainder of your comment) is irrelevant.

I love how everyone hates DB, on everything he posts. I haven't noticed if it's the same people, or if its different groups that are regularly irked by different things. Keep it up DB!

I'm not sure why disagreeing with DB's gloomy assessment of the housing market here in DC is equivalent to "hating" him, but please rest assured that I am actually a big fan of his.
1.23.2007 4:49pm
DavidBernstein (mail):
I think it's pretty funny that I was right, but so many commenters insist I was wrong. I won't argue the point, just note that I'd happily challenge anyone to point out something that I have posted about the housing market that has turned out to be wrong. Show me, for example, that I predicted a massive "crash" that would unravel the housing market in a matter of months. I did state in Spring 2005 there was a bubble, but some bubbles deflate, rather than pop. I even went out on a limb and predicted a top within a few months, which was right on target.

Prices are clearly down significantly in real terms in almost all the bubble markets, and for that matter are down somewhat nationwide, and haven't started going back up yet. I believe I suggested once in the comments that a 25% decline in real terms in the bubble markets was a good conservative prediction, and we'll likely still get there, and maybe more.

As for my decision not to buy in '04, prices on houses we were looking at are either slightly up (SFHs) or slightly down (townhouses) in real terms. No big deal.

It's amusing that none of the commenters criticize me for not buying in '00, when the real money was made; I assume it's because most of them have bought much more recently, and there is always a tendency to shoot the messenger (no, you're probably not going to become rich from that condo on the Vegas Strip you bought in late '04. You might even lose money if you sell it in the next few years. Maybe even a lot of money. Sorry, but my mentioning this has no impact whasoever on whether it will come true.) But like I've said, I don't post on the housing bubble because of my personal situation; I don't know why anyone cares what my housing situation is. But it's a huge financial story, and the MSM has been terrible on it, e.g., constantly quoted NAR economist David Lereah as if he is a neutral expert on housing, presenting uncritical stories on condo flippers like the stories on day trader in the late '90s and so forth.

Jailgor: Congrats on your great investment. Just be glad you bought in an emerging neighborhood in Brooklyn, and not in Phoenix, Vegas, or Ft. Lauderdale. Even during the last stock crash of 2000-2002, some stocks made a lot of money.
1.23.2007 5:10pm
I am patiently looking for a house in the DC area but have considered purchasing a condo. If the price of condos continue to drop, I might just go ahead and purchase one instead of a house. In other words, single-family homes and condos are, for me, "to some degree substitutes . . . ." Since I am a factor in the market, I think Professor Bernstein is 100% correct.
1.23.2007 5:12pm
DavidBernstein (mail):
Oh, and you may have noticed, now that the MSM has caught up, my posts, like today's, just tend to highlight interesting facts that get buried somewhere in a longer story.
1.23.2007 5:15pm
WHOI Jacket:
Yeah, I read "Condoms" too.

Time to get the mind out of the gutter....
1.23.2007 6:06pm
JoshL (mail):

Whoa, I need new glasses. I read it at first as "9 year supply of condoms" and thought no wonder why Washington is so uptight...

Read it that way too.

In other news, anyone mind airlifting some of those condos and plunking them down in NYC?
1.24.2007 1:09am

The reason that people don't criticize you for not getting into the market in 2000 is you were not posting about the supposed imminient crash then. The criticism is not that you have failed to make fantastic investments, it is that you are obsessed with validating your personal investment decision to assuage yourself that it was the right decision. I also note that while your original post on this subject was around 2004, your self-congratulatory posts that supposedly validate the "bubble" all compare to late 2005.

As for being "right," let me now go on record in predicting that the stock market, which is now reaching historic highs, will eventually peak and suffer a precipitous decline in prices, and then eventually it will rise again. Let me also predict that the U.S. economy will boom, and then eventually there will be a recession. Wait long enough and these will turn out to be true, just like your "predictions."

You: "I'd happily challenge anyone to point out something that I have posted about the housing market that has turned out to be wrong."

How about this gem from July 1, 2004: "I foresee this bubble ending badly, too--not nearly as badly as the Nasdaq bubble for owners of housing, but perhaps a lot worse for the economy as a whole."

So, show us that this prediction came true, and that the slowdown in housing sales and some modest price declines has had an effect that is "a lot worse for the enonomy as a whole" than the tech stock collapse.

You also posted multiple times about the "hard landing," including July 5, 2006: "the smart money is betting against a 'soft landing.'" Show us the "hard" landing.
1.24.2007 9:00am
jallgor (mail):
DB - I just don't buy your statement that "I don't post on the housing bubble because of my personal situation." As far as i can tell, the first time you ever posted about real estate was to announce that you were looking for a house and were interested in knowing if you could be your own real estate agent in Virgnia. This was on 3/11/04. On 4/4/04 you announced that, after an abortive bid on a house, you were staying out of the market because it was overheated. On 4/21 you seemed to have a change of heart and said that you were still looking for a house "against your better judgment" in the "overheated market." A month or so later you announced your decision to not buy a home and you have been posting about the housing bubble ever since. You obviously had a hard time deciding to stay out of the market and it seems to me (and obviously other commentors) that you have been trying to reinforce your decision in your own mind ever since.
I believe you were looking for a place near GMU. Have housing prices really gone down in that area since March 2004 (almost 3 years ago)? I wouldn't really know but I know they certainly have not gone down over that period in the NY metro area.
1.24.2007 11:51am
Byomtov (mail):
Isn't there a real estate "season", usually described as the Spring and Summer (2nd and 3rd quarters)? That sales plumetted in the winter doesn't mean that there is a nine-year supply.

This is correct. That he compares to a first quarter number doesn't matter. The point is that without a seasonal adjustment you can't translate a quarterly rate into an annual rate.
1.24.2007 12:30pm