Fairfax Resident: I assure you that there are buyers waiting on the sidelines. Those of us who watched housing prices get out of control just as we graduated college, had to get our first professional job, and pay exorbitant rent while those lucky enough to have entered the real estate market 5 years ago got rich off of their homes and condos.

While I at least have realistic expectations about future price growth, I want to at least be spending money on something I own, and not something someone else owns.

We are waiting on the sidelines, because no one wants to be a sucker.

Merv - Thanks for answering my questions. I am not a real estate professional but I am a reseacher (and former journalist). I am a buyer on the sidelines. I currently rent inside the beltway but want to move out closer to Herndon/Reston or Loudoun area. Right now I am just watching and seeing.

My take on things is that we are going to see a decline throughout 2007 more so in Loudoun then in Fairfax. (I sure that has something to do with all the new construction.) It will be a stalemate to some extent. This market will really not start to turn until 2008. 2008/2009 will bring a new change in many government positions with the election. I moved here July 2002 so I have not seen first hand how the market is effected by a presidential election.

I also will be curious to see what the 2007 spring/summer market starts to do.

On another not -- I really enjoy reading your blog. You back up your info with numbers and you are honest. Keep up the good work.

I believe you are correct in saying builders may cut back as inventory is worked through. The question is, how many projects have builders already invested in, that would cost more to cut back or even abandon, even if it means taking a slight loss to continue. I too believe that decision makers in homebuilding companies will make decisions to speed up or slow down building based on the bottom line.

The answer to your question about the drop down tables, it appears to me you have spent a lot of time not only presenting what appears to be solid emperical data, but presenting it in a way that is easy to read. I appreciate your work.

One other observation that I have made is that there are several apartment communities in Loudoun that have gone condo, one in Leesburg which went condo a year ago and has only sold 25% of the units. These could go back to being rentals.

I think the big wildcard for medium term trends is the 2008 election and whether or not subprime lending begins to be regulated more.

Thanks again.

Young Renter, checked out the links and both look appealing at what appears to be good rates.

Many like yourself are frustrated by the price of homes in Northern Virginia. I would be too. If renting makes more sense I say that's OK. The same way I tell potential sellers "if you don't have to sell, don't.

I am fortunate in that I purchased my new construction home in 1994. I could not afford to buy it today.

Sean, good to have you here. Interesting that builder stocks are taking a big jump today (or so says my broker). Some analysts have concluded the worse is over for builders. I am not sure I agree, at least not locally. I think builders are pretty smart about market dynamics. Many are hurting right now, especially in Loudoun. I don't see builders investing heavily in new developments until their current inventory dissipates.

Thanks for your kind words.

PS: how do you like the drop down effect for the Market Watch tables? I had to do something as the screen was getting too cluttered.

I have been enjoying your blog, and your daily market watch, for the last three months, but this is the first time I have posted. I am a "numbers guy" by profession and one of those "buyers on the sideline". My wife and I live in Loudoun County, and make near the median income. I do not believe a pending housing shortage in in the works. The reason being, twofold, investors trying to sell their second and third homes before the market gets worse, ARMS reset, etc., and homebuilders will continue to build as this is their livelihood. Furthermore, when it is cheaper to rent than to buy, people will rent until incomes catch up to home prices.

Merv, I respect your honest assessment, and like the way you present the facts in your daily market watch. I am far more likely to buy a house from someone like you, than someone who encourages me to buy now using risky financial instruments with little or no money down or risk being "priced out of the market forever".

Thanks again!

Fairfax Resident: Wow, lots of data. maybe you should be a co-author with me. To your point...

On the ground experience and talking to colleagues indicate "showings" but no contracts. Would be buyers are having trouble getting into the current market for the reasons I stated in the article.

Our personal experience reveals many of our showings are "move up" buyers and out of area transfers. Additionally, first time buyers are looking further and further west and south to find homes at a more reasonable price than Fairfax and Loudoun Counties. It is impossible to put a number on any of these, we just know they are there.

The macro economics of this area still suggests a healthy economy, job creation and interest rates that have pulled back to this year's low. Investing in the stock market is descretionary. Having a place to live is not (normally). Local supply and demand got out of balance. It worked to bring prices down. Buyers are coming into the market for "bargains." And, there's a lot of them.

I couldn't have said it better myself, except to mention all the recent spin the corrupt NAR and David Lereah have been spinning with their recent $40 million ad blitz. Looks like buyers, or whats left of them are finally realizing the bursting bubble that they would be buying into.

This market will get much worse in 2007 and continue downward, especially when were in recession in Q1 or the latest Q2 '07. Being "in the trenches" doesn't matter when the market speaks for itself.

Why would I buy when I could rent this:

href="http://washingtondc.craigslist.org/nva/apa/239339441.html>

or this:

http://washingtondc.craigslist.org/nva/apa/241351645.html

Looks like the flippers are trying to recoup some costs and it will only getter better for renters and when the $1 trillion in ARMS reset next year.

The "own a home" americans will be divided into the "drowing indebt" or "renting" americans

Buyers waiting on the sideline??? We currently have the largest percentage of home ownership in the country’s history. Where are these ‘sideline buyers’ coming from?

Many of these additional mortgagees qualified under, at best, flimsy (no docs) lending terms, and at worst, fraud, fraud, and more fraud.

In fact, I read articles virtually every day about real estate fraud on a web site that posts articles about the real estate bubble.

This blog has written numerous articles about the impending collapse in the real estate market.

The last time interest-only loans were available to the general public was in 1929. Need I say more?

Then we have Freddie Mac (FRE) and Fannie Mae (FNM). FNM still has not filed a financial report with the SEC for 2004 and 2005. Does that not peak your curiosity? The “guarantee” behind FRE and FNM is “implied” only, not guaranteed. OFHEO made it clear way back in 2002 – long after the bubble began, but long before many people were aware it existed – that there was significant systemic risk (PDF) in the real estate market. They recommended that FRE and/or FNM be prepared for liquidation in case of financial insolvency (see Section 4, p. 108).

The last few years more than 30-40% of loans nationwide were ARMs or I/O, and are about to (or already have) reset at higher interest rates. Interest rates appear to be getting ready to go significantly higher next year. When rates reset, many 'homeowners' will be unable to make the required payments. Housing prices are dropping and many people are already underwater on their loans and will not be able to refinance.

More people have bought second and third homes as investments or flippers in the last five years then ever before and they are now unable to sell them for what they paid for them. At some point, they are going to realize that they cannot make the payments and their “investment” was a substantial “liability.” More bankruptcies will follow. More empty houses.
This housing mess is going to cause hedge funds and banking institutions to collapse. The (Penn Square) banking collapse of the 1980’s, and the LTCM financial collapse of the 1990’s will seem minor compared to what awaits us now. We are in massive debt due to the “War on Terror” and the federal government will not bail out any government sponsored entities (GSE’s – FRE, FNM), or banking institutions.

On top of that, we have large corporations that will be unable to pay their retirement plans and will try to turn them over to the government’s Pension Benefit Guarantee Corporation (PBGC), just as the airlines have recently done. But, since the federal government will not be able to bail out the GSE’s or the financial institutions, it will not be able to cover people’s retirement plans under the PBGC.

Then, there will be many people who, under even these financial stressful events, would be able to make their mortgage payments, but they had the death of the family bread-winner, or a divorce, or…. . And, those people will be in the bankruptcy courts.

I’m sorry, I got distracted. You said something about a 10-12% drop in 2007 and remain a "buyer’s market" into 2008?

Oh, OK.