Frank,
It's been awhile. Thanks for coming back.

I think Fairfax will hold up through the coming spring as the trends always show a rise in average price. Maybe not by much, but still a rise.

I'm not as optimistic about Loudoun and especially negative on Prince William. Same with new construction. The builders are taking a real pounding. Everything I read Prince William was grossly overbuilt.

I've always said I wouldn't be surprised with an overall drop of 25%. At this point it is any one's guess. The Fed over the next few months could have a big impact in helping prices stabilize.

Down 11% so far, eh?

You may recall I predicted a total drop of ~40% sometime ago, so in my opinion the prices will continue to fall, and the rate of falling accelerate.

On the other hand, I did not really anticipate (well, think through) the Fed's continuing inflationary (loose money) actions. So now I am thinking that we may only see a nominal housing price drop of, say 25% total, while the other 15% will probably result from (and be hidden by) the Fed's inflation.

Whoa...just noticed the time lag in the comments. Sorry about that. :)

Don't take this as an attack Alby, but that is the WORST idea possible. This breaks the rules of a free market. Do you know who this "cool idea" of yours directly benefits? THE SELLER. I *certainly* would not buy into this scheme as a buyer - I would continue to rent as it is financially more intelligent.

If housing won't sell because there are too many high priced homes looking for too few buyers (or too few buyers that cannot afford the high prices), then market forces take over. For example :

- Sellers lower the price which increases the buyer pool.
- Sellers take homes off the market to reduce over all supply.

I can't see how to make it affordable here in NOVA, unless mortgage rates drop dramatically (like 2 - 3 points) which can't happen.

Prices need to fall. This is what happened in the '70s, what happened in the '80s and probably what will happen now. Doing the inflation thing could take a LONG time and IMO, hurt the economy.

http://jeffmilner.com/2007/04/a_history_of_home_values.png

All we need is a drop of about 50% over the next 5 years. We've done about 5-10% so far. LOL!

I yearn for the days when a house was affordable and not expecting it to spend 50% of your take home pay on a mortgage and taxes! Sorry Merv, I think the 6% realtor fee needs to drop to under 3% too.

Thanks, Merv. Hey, I should read the paper before I comment. :-)

From the article, this puts a nice face on the wild and unsustainable overspending over the last many years since the early 90s price drops: "The real estate appreciation of the past decade has been a double-edged sword for Northern Virginia governments, allowing them to offer new services and amenities".

I see no valid reason why the massive windfall of taxes arising from the real estate bubble should have stimulated "new services and amenities". Cutting these needs to be the focus of the NoVA governments, not trying to sustain them through higher taxation as funds fall.

I actually think that these estimates (in the article) may still be too rosey. These comments show that they are focusing on the slow down in the *growth* of *new* revenues (as less new homes are built at lower price points, etc).

What they need to watch out for is actual *falling* taxation income (at least in real terms), not just slowdowns! As prices drop, even modestly, assessments will be challenged, costing the governments doubly -- increased expenditures to address the challenges, and decreased revenues where the challenges are successful.

The governments need to get serious about cost containment before the REAL hits begin (soon). I think they could easily contract out needed appraisal work referred to in the article, for instance. With the drop in sales, appraisers should be happy for the piece work.

Frank, check out this article from the Washington Post, August 7th: Housing Market Pounding Fairfax. Looks like a $120 Million shortfall... I'd guess all Northern Virginia counties are facing the same dilemna.

As close as the market values and assessed values are to each other - and considering the likelihood that the market values will fall while the in-place assessed values will not - it takes little imagination to believe that many people will soon be in a good position to challenge their assessments.

I know I for one will be watching that VERY closely. We got a big increase in the assessment this year, while I see lots of homes stuck on the market nearby with signs screaming "reduced!!!"

I wonder how the NoVA counties, etc. governments will deal with a rapidly falling tax base valuation. I haven't heard that they set up rainy day funds while they were swimming in cash from years of incredible growth of property tax revenue. Or maybe I missed that news?

bcc, Good question. No, properties are not being re-assessed monthly. The MLS picks up county records reflecting assessments annually. There are two things potentially happening here:

1) Properties are taking much longer to sell. The assessed value is captured at the time of the listing. So, properties listed in late 2005 and early 2006 and sold in 2006 had 2005 assessed values in the listing record. Assessed values rose dramatically in 2006 based on 2005 data (annual assessments). The MLS records are usually updated with new assessed values in the spring after the homeowner challenge period has elapsed. Notice that the increase in average assessed value started to climb in May of 2006. Also notice that we are NOT seeing the same rise in 2007. Property values are relatively flat 2006 to 2007.

2) On average, the higher assessed values towards the end of 2006 may reflect a higher number of more expensive properties being sold.

Without significant manual effort to sample individual property circumstances, it is difficult to ascertain the absolute reason for the "acceleration." It most likely is a combination of the delays in tax records into the MLS as well as the mix of properties being sold.

Also, we are dealing with averages here; a mix of single family, townhouses and condos. Getting investors out of the system (condos especially) may also be having an impact.

The assessed value is included simply to track the relationship over time. Gathering this data long enough will potentially give us a pattern in the relationships.

In a market with significant price acceleration (2004 and 2005), the rule of thumb was that assessed value was about 70 to 75% of market value. In the current market of stabilized prices, the rule of thumb has obviously changed; more like 95 to 100%. I think that is what this chart is showing. It just takes a bit of time for the records to reflect reality.

The velocity of the avg. assessed value portion is throwing me off. Surely the county isn't re-assessing for tax purposes on a monthly basis. What's going on with this data and why did you include it? I must be missing something - what story is it supposed to be telling?

Looks like the same old story day after day. Rising inventory and flat sales. Unless a seller is willing to give away their home, and I mean sell your 3000sqft $600k Single Family for $400k (if not less), chances of selling are nil. Nevermind the broker fees of 3% if you sell it yourself or 6% if the seller uses a broker.

So how is this problem resolved? The tried and true answer is inflation over time. Although I doubt most people have years to wait for area incomes to inflate enough for people to afford their home. A much cooler idea would be to round up all the sellers and control the home supply in an orderly way, (much like DeBeers selling Diamonds), and just slowly release a few hundred homes scattered around the area, keeping demand high and supply low. Of course, such market manipulation requires 100% participation among existing and potential sellers. At best, you might be able to convince a small HOA of homeowners to do that. But with the community outside that HOA being a glut of homes, buyers would just laugh.

I'd have to say that a glut of homes being on the market will remain for 2007 and also for 2008. Either prices get slashed by 50% across the board or incomes grow. Otherwise the real estate market will be the same old song and dance.