The house prices in Loudoun county are clearly overprices even after the 15% haircut they got this year. They simply don't deserve the current prices. The townhouses are ugly looking matchboxes and sellers are plain greedy to ask $360K for them, they are not worth more than $160-175K. The last 5 yrs bubble driven mania is what drove up the prices and NOT the underlying fundamentals. The current sellers are slow to reduce the prices because they are still not able to accept the reality that the bubble has burst, they are indulging in wishful thinking.

Renting is far more economical in Loudoun county compared to owning. Ultimately the underlying economics will work and house prices will go down another 40% in the next 3-5 yrs here before stabilizing. Buyers have just got to be a little patient and not rush into a deal just because a seller reduced $10K and offered closiing costs.

I don't believe you can truly match a $360K townhome against the average needs of a Loudoun family in the $98K income range.

Compare: 1) The average $360K TH is around 1500 sqft and typically w/o a garage and is rather "tired" (old in realtor speak). Perfect for a starter couple or single, likely not making $98K.

2) The average family making $98K probably has 2-4 kids, is combining two incomes, and has two cars

Therefore, what the $98K family really needs is a TH/SFH with at least 2000 sqft if not more, a 2 car garage, and not have to spend a whole lot of money upkeeping an older property. Essentially, based on current prices in Loudoun County, they should not expect to find much fitting that description below $500K.

So despite the fact that a $360K house may or may not be affordable for the $98K couple, it is unrealistic to believe that houses in that price range would meet their needs to begin with.

The boomtime in Loudoun coincided with three things: 1) robust job expansion, 2) extremely low inventory, and 3) historically low interest rates. None of those will be present in the way they were in the next year or even 5 years...I urge people not to hold their breath on this! The boom ain't coming back for some time!

We will reach a steady state here shortly where prices fluctuate no more than 3% north or south of a higher than normal national average due to the nature of employment and salaries in the region and the premium that can be placed on distance and travel time, but that's it! The inventory has caught up and will continue in a sustainment mode (this isn't San Diego or Long Island...plenty more room for building); interest rates will not drop to the incredible 2001-2004 time period; and jobs will come in and out of focus in the region (not too hot and not too cold). Book it!

I'm with you, Beth. I will probably find a job elsewhere, or rent for another year and find a job elsewhere. At 30 and with two kids, my wife and I feel we have "paid our dues" and we're not willing to cram ourselves into a condo or skinny townhouse, whatever the cause.
On the bright side, with the glut of new and used homes for sale, expired MLS listings are going to rentals, and you can rent that $360K townhouse for $1600-1700 a month, around 20% of Loudon's median monthly income. In my mind, that's a lot smarter than buying in now and repeating to yourself that this is just a short breather.
I don't see the benefits to Northern Va that justify these prices. Jobs? Give me a 25% pay cut away from the coasts and I'm still living in a home. Schools? Parents play a bigger role in education than "the #1 ranked school system." Culture? Sorry, I have little kids- once a year to the zoo is about it for us.
The only thing my wife and I like about this area is it's close to our folks. That is not going to be enough to keep us here. Grandma and Grandpa are retiring soon anyway, so they can come visit us- maybe we'll even be able to afford a guest room!

To the previous poster, $360,000 is to much to pay for a townhouse. My family makes slightly above the median household income for Loudoun county and cannot at this point afford to purchase here. At $360,000, even with 20% down, the P&I would be about $1820. Then add another $500-600 for taxes and ins. Also, the homeowners fee, at least $50. This totals about $2400-2500 a month. That would be roughly half of our monthly take home pay.

This would leave us the other half to pay all utilities, food and clothing for a family of five, car payment, insurance, additional taxes, healthcare, etc., etc. If there isn't a serious correction in this housing market we will simply have to leave this area. I wonder how many other people feel the same way. Doesn't it seem ridiculous that a "rich" family making over $100K can't afford even a townhouse much less a SFH?

The median household income for Loudoun County is $98,000/yr, and the median house price is $530,000. So the median household can't afford the median house. That to me is an imbalance.
When the median home price drops to the point where the median household can afford it (without a predatory loan like interest only or Option ARM) I will believe home prices are realistic.
As for the stock thing, lots of people bought tech stocks on margin in the late '90s. That is leveraged debt, the same as a mortgage.
I agree with you that people won't take a loss on their house, but anybody who bought before mid-2004 and has to sell does not have to take a loss, as the proverbial $360k townhome cost $260 two years

While it's true that if homeowners are underwater, and they don't want to sell at a loss, they might choose to hang on.

But "comps" are set at the margin. Those who absolutely have to sell or who have very little debt/equity will still pull the median price down anyway.

Builders, too, will happily operate at less of a profit margin just to stay in business.

With a median salary of 100K, the median price ought to be somewhere around 300K.

I checked your inventory assumptions out here: http://www.virginiamls.com/charts/Loudoun.htm

It seems that the boom times were when inventory was 1000 units (2003-2005), and Loudoun is currently closer to 4000 units for sale. That doesn't include new home inventory of course, which is not readily available to me. The national inventory is at a record high as of yesterday.

I think there is a lot of Macro-Economic data that people are overlooking. Folks have claimed that a $360k townhouse is too much to pay. Who could afford such? Plenty of people. The median household income for Loudoun County is $98,000/yr. Fairfax is $94,610/yr. Prince William is $81,904/yr. With household incomes 2x the national average, anybody would be hard pressed to say that a $360-TH is unaffordable. And most of the data is showing the median home price in Loudoun County around $530,000 with only a minor decline.

Also, real estate is not like the stock market. Since the majority of homes are mortgaged, home owners are very unlikely to sell their home at a loss, because it would mean they have to come up with the difference to the bank at closing. Whereas selling a stock at a loss is only a loss from the total amount you paid out of pocket. You didn't buy that stock with 5% down and have a bank front the other 95% to buy IBM.

There is no right or wrong answer to this debate, because the truth will rest in 2007 when the new season picks up. Just remember, boomtimes in Loudoun County for sellers and runaway prices was when the inventory was around 1500 units for sale.
Today you have 3200+ units and falling.