As a part time prognosticator, I sometimes get it wrong. Sometimes I get it right. When I get it right, it is not necessarily a reason for feeling smug. Today, I reread this post that I wrote back in 2005. I wrote it when the oil squeeze was just beginning. I remarked how uncomfortable I felt seeing new exurbias sprouting up in nearby Loudoun County, Virginia because virtually all of them are inaccessible to public transportation. I wondered what would happen to these communities with continued increases in price of oil or its unavailability.
Now we are finding out, and the answer is scary, as this NPR story reports. Ashburn, Virginia is in Loudon County, Virginia and part of the greater Washington D.C. metropolitan area. It is one of those newly built exurbias. What is happening in Ashburn is that home prices are tumbling much faster than the national average.
Realtor Danilo Bogdanovic surveyed two rows of neat, new, brick townhouses on Falkner’s Lane. “These were selling for about $550,000 at the peak, which was about August ’05, and they’re selling right now for about $350,000,” Bogdanovic said. “Fifty percent of this community has been ether foreclosed on or is facing foreclosure.”
Coincidentally, my hair stylist lives in Ashburn. Today while she was cutting my hair, we were chatting about high gas prices. If she and her husband had to do it over again, she said, they would have never moved to Ashburn. Their gas prices are driving a big dent in their budget. Yet, I learned, moving in closer was not an option. They would lose too much money, because their house was worth less than they paid for it. If her house is on Falkner’s Lane, I can understand why she would feel blue, since she might now own a house worth $200,000 less than what she paid for it.
What might turn things around? As I implied back in 2005, some public transportation might help. That is not to say that it doesn’t exist in Loudoun County, but it is very limited and assumes you commute to work in Washington, D.C. A resident of Ashburn could drive or bike to the Dulles North Transportation Center and from there take an express bus into Washington D.C. This bus is not cheap. It costs $6.00 each way with a smart card, or $7.00 if you pay cash.
What would someone in Ashburn do if they needed to commute to some other job center like Tyson’s Corner? Perhaps they could catch another bus at the West Falls Church Metro Station, where the bus stops on its way into Washington. What if they need to take public transportation to go to a doctor’s office in Reston, Virginia? It might be technically possible at certain times of the day, if they can make it work with the commuter bus schedule and make their bus transfers on time. What if they need to take public transportation to go to the grocery store? As best I can tell, there are no such routes. Even if routes were put into place, given that Ashburn is such a sprawled out community they might have to walk a mile or more just to get to a bus stop.
For all practical purposes, residents of Ashburn are stuck. Owning a car is required to live there. Their lifestyle is held hostage by the price of oil. Oil prices may seem astronomical, but they are fortunate that gas is available at any price. Without it, Ashburn would become a gigantic modern ghost town. Combine rising oil prices with a falling dollar and the negative net worth of so many residents of Ashburn and you end up with houses that are worth $200,000 less than they were just three years ago. You have whole communities of people with negative equities in their houses, unable to move and who are one job loss away from financial catastrophe.
My own house is about three miles away from Reston. Reston is a major source of employment and has thousands of great jobs for knowledge workers. In the unlikely event that you lose your job at one company in Reston, you can probably pick another one like it somewhere else in Reston. A Fairfax Connector bus serves my neighborhood, but it operates during rush hours only. However, my house is just three to five miles away from thousands of jobs, not ten or fifteen miles away like in Ashburn. Where I live, you can probably get to your job without a car if needed. I bicycle to work, which is three miles away, three or four days a week. Consequently, gas prices affect me much less than most commuters. Yet even if I worked downtown, I still would not be too badly inconvenienced. I could bike to the Herndon Monroe Park and Ride, which is also three miles away, or grab the 929 bus, which runs by a road a few hundred feet from my door. Once at the Herndon Monroe Park and Ride there are plentiful express buses that will take me to the West Falls Church Metro station. From there I can get to any place on the Metro system. If I needed to take a bus to nearby Reston, Herndon, or even some of the local malls, I can transfer at the Herndon Monroe Park and Ride. Obviously, I could get to these places more quickly by car, but it is possible. The same cannot necessarily be said about communities like Ashburn.
My neighborhood is not immune to the real estate slowdown either. Our house has lost about $75,000 in value since its 2005 peak. However, that is $75,000 though, not $200,000. There are plenty of houses for sale on my street, virtually all in excellent condition. We live in a terrific family neighborhood where owners take pride in their houses. I suggested to my stylist that they should move to a house on my street. She would be two miles from work so the cost of gasoline would be insignificant. However, with the negative equity in her house, moving is out of the question. Where would she and her husband find the money to pay off their loan on closing?
I do not think these underlying dynamics are likely to change. We are at the beginning of a fundamental transformation of America. This means our love affair with the automobile is likely to change dramatically. At best, I expect oil prices will stay about where they are now. Therefore, for many homeowners out in exurbia the financial squeeze, already bad, is likely to get much more painful. The long-term trends though are clear. Unless you can work from your home or can find employment close by that pays your bills, do not buy in the exurbia. If you are in the exurbia and can move in close, this is the time to do it.
Housing prices are down substantially in good neighborhoods like mine that are close to jobs and public transportation. Because prices are down and mortgages are very affordable, now is an excellent time to buy in these neighborhoods. It may not be easy to sell your current house, but as I learned in 1993 if you lower the price enough you can sell any house. You can buy a better and closer house at a substantial discount and be primed for appreciation during this seismic realignment of society. In addition, selection is plentiful.
To the many residents of Ashburn and similar far-flung communities who are feeling the squeeze, you have my sympathy. If I lived in Ashburn, I would still move closer in if I could find a way. The long-term housing dynamics for Ashburn and places like it look dismal. You may find yourself inhabiting a modern ghost town.