BusinessWeek is writing Bubble, Bubble Then Trouble
Psssssfffffft. That’s the sound of the air finally leaking from the real estate bubble in Loudoun County, Va. Since 2000 it’s been the nation’s fastest-growing county, where eager homebuyers always seemed to outnumber happy sellers. Until now.
By October, agents had 2,908 existing Loudoun houses on the market, an increase of 127% over a year earlier. The average time on the market had climbed 62%, to 42 days, since the fall of ’04. And in just two months, from August to October, the median sales price for houses dropped from $506,100 to $480,000.
What’s happening in Loudoun is a rapid shift in psychology — a classic sign of a market turn. The buoyant optimism that fueled speculation and expectations of ever-rising prices is now succumbing to the fear of being left standing when the music stops. Real estate, the hottest play of the century in Loudoun, is rapidly cooling.
The same signs of a slowing market can be seen in hot spots across the country, from Boston and Miami to Phoenix, Las Vegas, and San Diego. Nationwide, a leading indicator for housing — sales that are pending but not completed — declined 3.2% in October from September, the National Association of Realtors reported on Dec. 6. Mortgage rates, while still low, have edged up almost half a percentage point from a year ago, to 6.26%, according to Freddie Mac’s weekly survey.
Easy financing fueled the buying boom: County officials say up to 40% of new mortgages this year were interest-only loans, with low payments enabling borrowers to finance higher bids.
Jim Williams, executive vice-president of the Northern Virginia Building Industry Assn., knew the “feeding frenzy” had gotten out of hand when a waiter in a restaurant he frequents confided that he had bought four houses on spec. “I’m sitting looking at him and thinking even with tips…he must be dying on the vine.”
Loudoun’s real estate community insists the market is merely reverting to a more normal state. “We’re coming back to more of a balance,” says Karen Overheu, a Long & Foster Realtor with listings in Loudoun County. “You don’t have to make up your mind [about buying a house] in an hour or risk losing it to someone else. It’s a little insane to have it the other way.”
There’s another explanation, says insurance agent Joe Kelly over lunch downtown at the Leesburg Restaurant. “They ran out of stupid people.”
Expect to hear more about a change in psychology in the coming weeks. I was writing about that last night at 3:00AM in as of yet posted piece, and here we are this morning seeing various media discussing the idea. Markets may be “local” but expect to see “psychology changes” roll from local market to local market to local market.
When you see waiters buying 4 homes on spec, the “pool of stupid people” is usually about exhausted.
What happened in Virginia?
- “They ran out of stupid people.”
- It happens at every bubble top.
Mike Shedlock / Mish/