When Will the DC Real Estate Market Turnaround?

March 22, 2008.

I'm just kidding, of course. I wish I had a crystal ball to be able to answer that directly. No one knows for sure, of course; it ranges from the NAHB's projection of 2008 (ever notice how industry projections are always six months from the date of the projection??) to this Barron's projection of 2011.

Lots of people are confident that this is part of a normal and predictable cycle. Everyone knows that real estate moves in 7 year cycles as in this article. Or maybe you believe in Hoyt's 18 year cycles, as described here. On the other hand, you can be confident this is part of the 50-60 year cycle, shown here. This one is my favorite: it's all aligned with the nodes of the moon, which means it's an 18-20 year cycle.

So there you have it: the market will turn in either 1, 3, 7, 18, 20, 50 or 60 years. Everyone all clear on that?

But when do you start counting the years? This article from May 2005 says that the bubble won't pop at all until 2009-1010. My point is simply that you can read predictions far and wide, and they're just that: predictions--but no consensus, at least not yet.

National projections don't mean much to an individual market though. In our case, the good news in this area is that the Washington, DC, area is often considered a contender to be the first to turn around (see article here) because of its extraordinarily strong job market and relative, i.e., long-term, housing shortage (see slide 38 of GMU study here.) and also my commentary here.

So is this a good time to buy? Maybe, maybe not. It depends on your particular situation. Buyers should think of the following criteria:

(1) Renting as an alternative: Do the financial analysis of rent-vs-buy using this calculator. Consider the mortgage interest and property tax deductions, the alternative use of funds (assuming you invest them, not spend them), and capital gains exclusion on sale.

(2) Stability: Is your financial situation stable for the next 3 years? e.g., Is your job secure? Are you expecting any life changes like marriage or children that might prompt a move? If you're not going to live in the property at least 3 years, it's nearly impossible to break even in this market due to transaction costs.

(3) Responsibility: Do you want the responsibility of owning a home? The maintenance headaches all become yours, but so do the benefits like stable payments (depending on your mortgage type), the ability to paint or remodel, permission to have a pet, getting away from your current neighbors, and building a "home" with furniture that you didn't have in college. (I moved 10 times in 10 years prior to buying my home--boy was I ready to not move again!)

Once a buyer has considered these points, it may make sense to at least start the process. Depending on which areas you are searching, you may find that the market is trending flat or even up. This is particularly true in areas that are close-in to major job markets (e.g., parts of Northwest DC and Arlington). It takes a buyer months to get to know a particular neighborhoods they're searching, and after that it gets easier to recognize a property that is a good value versus the other inventory--the trick is that you have to be ready to jump on it when you see it, and that takes some prep time.

If you're considering starting your search, contact me to discuss specifics on neighborhoods, and whether it makes sense to buy now or wait.

Negotiating a December or January Settlement?

Then this post will tell you how to potentially save a few thousand dollars in closing costs. Beginning January 1, 2008, the grantor's tax (charged to the seller) will increase from $1 to $5 per $1000 in value (so on a $500,000 home, the seller will pay $2500 to the state, rather than $500.

The localities affected by the increase are: the City of Alexandria, Arlington County, City of Falls Church, City of Fairfax, Fairfax County (including the Towns of Clifton, Herndon and Vienna), Loudoun County, City of Manassas, City of Manassas Park, and Prince William County.

So sellers, push for a 2007 closing. And if you're a buyer who is indifferent about when to settle, offer to settle in December and ask for half of that savings back as a closing cost credit - it's win-win!

Thanks to Marcus Simon at MBH for this reminder!

Attention Sellers: 5 Mistakes Listing Agents Make

Sometimes I'm shocked by the lack of attention to detail on the part of listing agents, and unfortunately sellers usually don't even realize it. There are at least 10-15 significant ways that a listing agent can differentiate themselves--and, by extension, the listed property, and they do not all involve spending more money. In fact, sometimes it's the activities that require time, not money, that get a property more attention. I work with a lot of buyers, so I see exactly how buyers react, and as their agent, I know which inconveniences I'm willing to tolerate to still show your home. Believe me, it's not enough just to list the property in the MLS!

Here are a few "quick hits" that sellers can easily check for themselves. If your property is currently listed, see if your listing meets these criteria. Though they may seem obvious and easy, you'd be surprised at how many listings don't do these simple things that encourage easy showing of your home. As your agent (or check for yourself) to see if your property is "buyer-friendly." In a market where there are so many options for buyers to choose from, combined with buyers who are part of the internet's "instant gratification" generation, it may make the difference between getting your house shown and not.

Obviously you want to make sure your property is listed. But ask your agent to send you the listing (or even just search for it yourself on any of the major broker or agent sites, like this one. Here's a sample of what a property will look like in the MLS (this is one of my recently sold listings.) There are 5 simple yet very important things to check:

1. Photos - Does the listing have multiple photographs (either via still shots or a "virtual tour")? On the top left corner of the sample listing, you can see a small camera with a number next to it (the stills) and a movie reel (the virtual tour). I'm partial to the stills because they load more quickly, which is critical for the internet-savvy buyer. There are also some really bad virtual tours out there that focus more on the music and zooming rather than actually showing the property. A lot of photos is an absolute must--buyers assume something is wrong with the property if there is just an outside shot (or even worse, no photo at all!)
2. Directions - You'd be shocked how often directions are incorrect. I often send my buyers on a "drive by" of properties before we go see it together. If the directions are wrong, and they're already out driving and can't easily mapquest it, they will quickly give up on your property. (A corollary to this: if your agent is doing open houses for you, check the ad that runs on the day of the open house.)
3. The description ("Remarks") - What does your agent say about your property? Is the description accurate? Do you think it presents the most positive features? Are there typos or spelling mistakes? What does that say about their attention to detail?
   
4. Showing Instructions - This isn't publicly viewable so you will have to ask your agent to print out their own version of the listing for you. It tells a buyer's agent where and whether to call before showing, and where to find the lockbox. It's important that it not be too difficult to arrange viewings (e.g., "Call two owners and agent prior to showing. Show only M-F 9-5pm.") If I have to make 3 phone calls to coordinate a visit--not to mention coordinating my schedule and my client's--versus the unit across the street from yours that says "Go anytime," which one do you think will be the one we will visit when we just have time for one or two showings? Or if a client calls at the last minute--as they often do--to say "Do you have time today to show me some units in X development?" Also, ask your agent where the lockbox is, and if it's on a fence with 10 other lockboxes, as is often the case of a condo building, make sure it's clearly labeled as belonging to your agent and/or your unit. Better yet, go check out that fence yourself and make sure you can tell which one goes to your unit. If you can't, chances are a buyer and their agent can't either. If you can't find the box and the key, then how can the person that wants to show it to a buyer? It's so frustrating to have planned all week to spend the afternoon with a client, then we can't find your lockbox. I call your agent but get their voicemail. If I can't find the box and key, unfortunately I have no choice but to move on, as there are plenty of other units out there.
5. Online presence - is your home listed on sites other than the MLS? There are dozens of places that agents can list your home for free, if they take the time to do it. Go to Craigs List, Yahoo real estate, GoogleBase, Trulia, and other sites and search for your home. Study after study show that the majority of homebuyers start their search on the internet, so you want to cast as wide a net as possible. If you can't find it, ask your agent why not.

These are just a few of the ways you can make sure that you raise the expectations bar for the quality of services you receive. To hear more about how listings agents can differentiate themselves, please contact me.

Zip Code Comparison Site

A friend sent me this and I think it's a pretty neat resource - there are lots of census data-driven sites out there, I know. This one has all the usual data (education, marital status, income levels, unemployment levels, occupation, demographics, etc.) but this one also has a neat comparison option to compare up to 20 zip codes, and presents some of the data graphically too, which makes it a little more interesting to peruse.

http://zipskinny.com

First Time Buyers in the District - $5000 Rebate Through Year End!

Here's one more reason to buy now, at least in the District: For first time buyers that settle on a purchase in DC before December 31, you may get a $5000 credit (not a deduction--an actual dollar for dollar offset on money owed!) on your Federal Taxes. That's the same as Uncle Sam giving you $5000 of your hard earned money back just as a 'thank you' for buying in the District.

You may recall that the rule had expired in early 2006, but was approved during the final Congressional session of last year, and made retroactive to the delight of many 2006 buyers. It expires again at the end of 2007 (next month.) Even if you own a home somewhere else (including the D.C. suburbs), you can qualify for this tax break if the house you buy is the first one you own in D.C. In fact, you can qualify even if you have owned a home in D.C. before—as long as you have not been an owner for at least one year. There is, however, a phase out based on income limits: between $70,000 and $90,000 on single returns and between $110,000 and $130,000 on joint returns.

$5000 would make a nice Christmas bonus, no?

Q3 Trend Report - What are you waiting for?

The Metropolitan Regional Information System (MRIS, the group that runs the Multiple Listing Service) has released its Q3 Trends in Housing Report. It’s an interesting read. You can view the full 22 page report here.

Some highlights:

- Job Growth: Over the 12 months ending in August 2007, over 47,000 new positions were added-—5.8% above the 15 year average. Interestingly, all of the government job growth came from local governments, not Federal. The local unemployment rate dropped even further, to 3%, the lowest in the nation for any major metro area. Even more jobs are expected to be created in 2008.
- Residential housing market – “remains in an adjustment phase at 3rd quarter 2007, though there are signs of creeping back towards equilibrium….Average metro-wide prices in July and August were more than 4% above prices the same time last year…The average days on market has consistently declined since the beginning of the year.” This next part is critical: “But the gains are uneven, with desirable areas inside the Beltway showing strong price gains and shorter listings, while the reverse is generally happening as distance from Washington increases.”
- Outook: “By spring 2008 we expect that consistent demand (generated by steady job growth, net migration, and a rising immigrant population) and a decline in construction will stabilize pricing, leading to an uptick in sales activity, with improvement in market conditions appearing by summer.”

So what does this mean? A few points:

Not surprisingly, and consistent with other posts I’ve made, the job market is a huge driver of where the real estate market will ultimately head. More jobs = either a) more people moving to the area or b) higher salaries (more employers competing for the same employees), or some combination of both. People with higher salaries are more likely to buy, and people moving to the area need a place to live, whether it’s renting or buying. (More demand for rentals will translate into higher market rents, which will in turn make buying a more attractive option.) Either way, it's going to result in an uptick in housing. So if job growth is good, eventually the real estate market will follow.

Next, the point about uneven gains is clear to anyone who has been tracking specific neighborhoods in the past year. All those foreclosures and short sales you read about? The overwhelming majority of them are in the outlying suburbs – Herndon, Leesburg, Woodbridge, and similar areas.

But what about 1BR condos in 22201 (that includes Ballston & Clarendon)? So far in 2007, the average 1BR condo stayed on the market for 40 days. In January, the average 1BR condo in 22201 sold for $305,644. By August? $363,252. Granted it’s come down a bit since August, to $320,183 in October, but if you’re waiting for 1 BR condos to bottom out in the orange line corridor, you just may have missed it. (Side note - January was the lowest price of any month in that zip code in 2007, and not surprisingly, since fewer buyers means more negotiating leverage. Implication: This is a great time of year to get started with your search!)

My point isn’t that you should try to time the market down to the month, but rather to take a more macro view that the coming months are in fact a good time to buy. If you don't buy in a buyer's market, when should you buy? Never? I doubt you believe that or you wouldn't be reading this post.

This too, like any other buyer’s market, will eventually turn to a seller’s market. The tricky thing about changing markets is that you don't know when it changed until long after the fact. It's not like the Post will suddenly have a headline that reads "Real Estate Market Bottoms Out This Month." Think longer term, and if the circumstances of your life have you thinking you want to buy, pick the one or two neighborhoods that you're interested in and really dig into that data to see whether the micro trend reflects what you've been reading in the papers. Then make the "buy or wait" decision. You may find that what you "save" by waiting isn't a savings at all. (see rent vs buy calculator post here - this one has great options that aren't normally included that allow you to account for condo fees, tax brackets, and rate of return for the alternate use of your funds .) If you're thinking of buying in Woodbridge though, I'll save you the trouble: wait.

Data Source: MRIS. All data deemed reliable but not guaranteed.