Washington DC Regional Market Updates

Existing home sales across the nation took a surprise jump in December, but most experts say that trend (nationwide) is unlikely to continue given further economic decline. Moody's, however, is optimistic: claiming that 2009 is the "bottom."

Our local economy and flow of investment dollars continues to outperform the nation's averages.

Forbes recently named DC as one of the best places to buy real estate right now, and the Association of Foreign Investors also named DC as #1 on its list of top global cities for investment.

Where there is money and investment, there are jobs, and where there are jobs, there are people that need homes, whether rental or purchase. Here are some of the headlines this month indicating continued investment in our area.

• Hilton Hotels just "checked in" to Fairfax, bringing investment and jobs with it.
• Northern Virginia is prepping to aggressively go after its share of stimulus dollars with its lengthy list of "shovel ready projects"
• The Montgomery County Council moved another step closer to building the Purple line linking Bethesda and New Carrollton

Ready to start your search for a home in the DC or Northern Virginia area? Consider attending one of my free first time home buyer classes - details are here. Or start searching for homes in the MLS here.

Thinking of selling? Contact me to to discuss the impact these developments might have on your home's value!

Finding an Investment Property in Northern Virginia

As prices plummet, some solid investment opportunities are starting to emerge…but how do you identify good investment properties?

Step 1: Identify some target neighborhoods.

- The first thing to do is to consider long term (e.g., 10 years) appreciation potential. Think about area employment (and more importantly where those employers are—commuting time is a big factor). Also think about long term demographic shifts like BRAC, as well as infrastructure projects like new metro stations or light rail lines.
- Consider the neighborhood. Ideally you want to find the lone problem house in a great neighborhood, but that’s easier said than done. Also consider neighborhoods that previously had been more desirable in terms of age, location, and home condition, but perhaps were hit hard by this recent wave of foreclosures.
- Consider the price range – While you hope to ultimately find a property that will be cash flow positive, you nonetheless have to front the money to buy it, and getting a loan these days isn’t easy, especially for investors. Financing remains a problem, and lenders require investors to put 30% down, plus closing costs of about 3%. Interest rates run about a percentage point higher than owner occupied properties. Figure out how much cash you’re willing to put into the property, what you can qualify for in a mortgage, and back into a price range from there.
- Look at rents the neighborhood can command. Once you identify a few target neighborhoods, begin collecting rent data. The best place to collect rent data is on Craigs List in addition to the MLS. This is because many landlords conduct the process themselves and so the listings are never in the MLS. You also can’t be sure how aggressive a listing agent was in procuring a renter, which may skew the price. If they put it into the MLS but then never on Craigs List (by far the more popular site for finding renters), then it’s likely the rents there are lower than what the market actually commands. Unfortunately there’s no easy way to gather historical Craigs List data – you just need to keep watching and see which rentals seem to go quickly. Consider calling some of the landlords to ask whether they’ve had a lot of responses.

Step 2: Identify some target properties

- Short Sales & Foreclosures are a great opportunity because you can be patient. (See my post on the challenges of timing a foreclosure transaction here and the frustrations of shorts sales that never close here.) While an owner occupant doesn’t have the luxury of time and can get frustrated with all the problems of these transactions, investors can go with the flow since their timing is more flexible. And that flexibility pays off by getting properties for less money.
- Consider the home’s condition and your level of expertise in doing or managing renovations. Many of the short sales and foreclosures on the market today come at bargain prices, but require everything from heavy cosmetic work to kitchen and bath remodels to mold remediation. Very few properties in the attractive price ranges are move-in ready, but there's a lot of upside for people not afraid of elbow grease and with the right handyman connections.
- Be patient. You may need to wait for the right house at the right price. Set up an alert so that you can be ready to jump on a property that meets your investment needs as soon as it comes on the market—you can be sure other investors are circling and waiting for the right opportunity as well!

I’ve seen some inside the beltway single family homes below $400K and townhouses in under $300 in areas that I feel have great long term potential given our area's strong job market and expected government growth (see this post on the best place to live in a recession here, and article on the bailout being a boon to our local economy here.)

In another post I’ll cover how to look at cash flows for an investment property.

I’m working with several investors and have already previewed many homes that fit the criteria above. Call or email me to set up an appointment to discuss investing opportunities!

DC & Arlington Named Best Places to Be During a Recession

Worried about the economy? Here's a bit of good news: DC and Arlington were named by Business Week as two of the top ten places to live during a recession. Cities with a focus on health care, law, education, energy, and government rose to the top. The article notes:

Government towns tend to be relatively stable because—even though budgets are slashed—the public sector still must pay the salaries of politicians, building inspectors, police officers, military personnel, and tax-authority employees. Cities that we think might benefit from government employment include Chesapeake, Va., near the massive Norfolk Naval base, and the state capitals of Baton Rouge, La.; Lincoln, Neb.; and Madison, Wis.

And another piece of good news for our local area: the bailout will be a boon to our local economy. The Washington Business Journal notes:

...the most massive government takeover of private capital in U.S. history likely will bring economic activity to the region’s economy, in much the same way the tragedy of the 9/11 terrorist attacks spawned a new homeland security sector, the panelists said. The savings and loan crisis of the late 1980s also led to another government boon, the creation of the Resolution Trust Corp., which maintained office space in downtown D.C. for a decade to deal with fallout from the S&L insolvencies.

“It’s going to create a whole new industry of services for all of us, for the banking sector, for commercial real estate, the advisory and brokerage sector, legal and accounting,” said David Kessler, a principal with the accounting firm Reznick Group P.C. “We’re going to see a boost in the local economy as a result of that.”

Another boon from the bailout: the $5000 tax credit for DC first time home buyers was included in the bill! (Not buying in DC? You can still take advantage of the $7500 first time buyer "credit" (really an interest free loan) until July 9, 2009.)

Northern Virginia Real Estate Market Update - The Good, The Bad, The Ugly

It's tough to interpret the market today.

The Good: Inventory in Northern Virginia remained below the "balanced" mark of 6 months for the second month in a row, as sales increased. The PMI Mortgage Insurance Company has released its latest index which indicates ranks the liklihood of declining markets across the US. Our area got a score of 21.4 which, for you glass-half-empty folks, means there is a 21.4% chance that prices will be lower in two years. For the glass-half-full folks: they predict almost an 80% chance that prices in our area will rise over the next two years.

Even Loudoun County, which was hit significantly harder than close-in markets like Arlington and Alexandria, showed significant improvement, with the highest number of monthly sales since December 2005. Sterling Park, with the highest rate of foreclosures in Loudoun, had a year over year sales increase of 94%, and inventory across the County is down 25%!

Barron's has noted that numbers may indicate we are nearing the bottom.

The Bad: Case-Schiller continued to report declines in our area: 1% decline this quarter, and 15% year over year. Predictions continue to roll in for slowed growth and an underperforming economy as consumer confidence and home prices slide.

The Ugly: Foreclosures remained high, though buying one is not for the feint of heart. Here is a good article to guide your expectations, and another with some tips on buying an REO property, and don't forget to read my blog post series on foreclosure risks as well.

So should we believe the bad news or the good? The bottom line is that all of it is true! The decision to buy or sell a home is one that depends on your situation, timing, finances, and neighborhood. Don't trust that decision to a single headline. Give me a call to discuss if it makes sense for you.

Northern Virginia Real Estate Statistics - June 2008

June's Northern Virginia (Arlington, Alexandria, Fairfax, Fairfax City, and Falls Church) inventory and home sales proved to be an interesting story: Despite the spring timing, inventory dropped (slightly) for the first time since December 2007...



While sales simultaneously rose for the 5th consecutive month.



For the second month in a row, inventory has dropped below the "balanced" level of 6 months. Is this just a seasonal bump? Whether yes or no, a drop in inventory means fewer choices for buyers, and I can tell you from first hand experience that a lot of the inventory out there is junk that most people would never consider buying. So the market may present fewer choices than you think if you're serious about finding a home.

With the Fall right around the corner (though it's 90 degrees out as I write this), we can expect lower prices, but we can also expect even fewer choices. So you might get a great deal, but on a home that's already been picked over by all the Spring buyers.

There's a 'sweet spot' in the early Fall though, where there are homes on the market with sellers who are getting increasingly anxious about the end of the season -- I believe buyers will have a lot of opportunity and leverage in the August October timeframe. Contact me to discuss whether this is the right time for you to begin your search, and whether the neighborhoods you're interested in have rising or falling inventory.

PMI Risk Index: 80% Chance of Rising Prices in Next Two Years

PMI Mortgage Insurance Co released its latest U.S. Market Risk Index, which ranks likelihood of declining prices for the nation’s 50 largest metropolitan statistical areas (MSAs). PMI Mortgage Insurance Co is one of the largest providers of PMI in the US, so you better believe they spend a good chunk of time studying the market, prices, and defaults.
The bad news is that the decline in national prices accelerated in the first quarter of 2008. The more interesting news for our area is that the Washington-Arlington-Alexandria MSA had a risk rank of just 3 (of 5) and risk index score of 21.4, down from 29.1 last year.

This risk index reflects the probability that prices will be lower in two years. So if you're planning on waiting to buy because you think prices will drop, this report is estimating that there is a 1 in 5 chance that you will make out better if you wait two years; said another way, there is a 4 in 5 chance that prices will go up. This is no doubt tied to our area's continuing low unemployment rate of 3.6%, the lowest of all 50 MSAs.

Buyers: 80% chance prices will go up...you might want to start your search soon.

Sellers: Hold on a little longer...your odds are improving.

Read the full PMI report report here.

Real Estate Market Update - Montgomery County, MD

A review of the current Montgomery County market statistics confirms what most people already know: it's still a buyer's market. Inventory is up almost 15%, and median price is down to $410,000, about 8.5% from May 2007. Number of sales is down 33% from 2007, and days on market is up 24% from a year ago.
(Click the image to enlarge)

Does this mean buyers should wait? Maybe. As always, it depends on your personal circumstances. However, with the passage of time comes the uncertainty in the lending market. Just in the past year, we've seen the elimination of 100%, 95%, and even 90% financing in many cases, meaning much larger down payments for buyers. We've seen higher interest rates, stricter credit requirements, and fewer loan options. Though FHA has become a viable option thanks to higher limits in our area, the loan limit of $729K remains temporary through the end of 2008.

Waiting might bring lower prices, but with the looming threat of inflation, high rates become more and more likely, and unless you have large cash reserves AND outstanding credit, changes in credit guidelines may surprise you (would anyone be surprised if 20% down payment requirements again became the norm given how badly banks were burned by defaults??)

Further, market statistics may be lulling buyers into a false sense of security that time is on their side. Similar to Arlington (see my 2007 Post: Some Sellers Do Get It, and Get It in 30 Days) the average days on market in Montgomery County of 103 is very misleading, and buyers may be fooled into thinking they have plenty of time to think about whether or not to make an offer on that house that they love.

(Click the image to enlarge)

A review of the successful sales in May reveals that over 1/3 of the homes that sold were on the market less than 30 days, and almost 2/3 were on the market less than 90! Then, as with every market in our area, there are the homes with sellers that drop and drop and drop the price to what is eventually the 'correct' price, and they sell sometime in or after the 4th month.

As I've mentioned before, once a buyer sees 10-12 homes in a given neighborhood, it becomes pretty easy for one to identify the 'value priced' homes, that is, that 1 in 3 that will sell quickly. The issue for buyers is that all the other circling buyers out there recognize it too, and at least some of them will jump on the opportunity when they see it.

Montgomery County is a big place, and it's unfair to paint the entire area with one brush. Contact me to discuss the neighborhood you have your eye on, and to see whether it's one that is following the trend, or whether waiting may not bring as much benefit as you hope. After all, an average is made up of points higher and points lower--see where your dream neighborhood falls in the range.

Interested in learning more? I will be teaching a free, one-house first time home buyer class at Montgomery County Library on July 31st at 7:30. We will be covering a general market overview in addition to the mechanics of the home buying process, including tips and tricks. There is no cost to attend, but registration is required. Contact me to sign up.

Housing Bill: Senate Amendments Create Buying Incentives

The senate started piling on amendments to a proposed housing bill that, if passed, would add some interesting incentives to buy. Of particular note is a proposed $7000 tax credit (not a deduction--a credit!) to anyone buying a foreclosed home (see my post: "I want to buy a foreclosure.") A credit that size would indeed compensate for some of the risks involved in buying a bank owned property (see beginning of series here.)

For people in a 30ish% marginal percent tax bracket, a $7000 credit is equivalent to about $23,000 of income tax-free--that is 23,333* 30% tax rate = $7000 in your pocket!

Not interested in a foreclosure? That's okay--Senator Ben Cardin wants to give a temporary $7000 credit to all first time home buyers--similar to the measure that has spurred a lot of first time buyers in DC for years--as well. (TBD on whether first time buyers who purchase a foreclosure get $14,000.)

We'll have to keep an eye on this to see if it passes through as-is, but if I were on the fence about buying, $7000 is a nice chunk of change for the government to chip in.

Update 04/08/08: The House plan is proposing an $8000 first time buyer credit, and is good for the next 12 months. The credit would need to be repaid after 15 years. Stay tuned -- this is destined for committee before being passed. So far, this is just a bill, not a law...remember the classic ditty: I'm just a bill...

Read more: Figure out your marginal tax rate, that is, the tax paid on the last dollar earned.

Read more: Risk of buying a foreclosure series starts here.

Read more: Tax Tips for Homebuyers

Read more: Local Classes for First Time Homebuyers

What is the State of The Housing Market? (Multiple Choice)

What is the State of the Housing Market? Please choose the best answer.

A. Looks like the start of a recovery. NAR Q3 2007 Report indicates roughly half of US markets show an increase in median home prices.

B. About flat, plus or minus 1%...OFHEO reports Home Prices down 0.4% in Q3 2007

C. We have years of decline ahead of us…start keeping cash--strike that, better make it Euros--in your mattress, folks! Case Shiller reports “The Sky is Falling, The Sky is Falling!” (Ok, that wasn’t really a headline attributed to them, but that’s basically the message in all of their press releases…pick which ever press release you want.)

Ok, pencils down. You all get a gold star. No matter which one you choose, you're correct. Why? It comes down to the methodology.

The National Association of REALTORS® statistics captures the median value of home transactions that come from all of the Multiple Listing Services nationwide. They cover all home sales at all price points, and release data in a relatively timely manner.

OFHEO, the government agency that works with Fannie Mae and Freddie Mac, also releases its quarterly analyses. They cover 287 markets, but because they are primarily concerned with the conforming loan market, the track only resales that meet that criteria (until recently, loans under $417,000. See my post on Conforming Loan Limits.) It also includes refinancings, which arguably have more generous appraisals. FYI, OFHEO does typically include an attempt at reconciling their numbers to Case Shiller. Because CS is a privately owned index, the exact methodology is impossible to duplicate.)

Case-Shiller, which is probably the most widely quoted analysis, covers only 20 US markets BUT includes ALL price points and loan types—exotics, sub-prime, and limited documentation. Of course the 20 metro areas covered are very large ones, which typically have more expensive homes (anyone ever compare a 4BR colonial on an acre in North Arlington to a 4BR colonial on an acre in Cleveland?) It excludes 13 states completely and has limited information on 29 others—so incomplete or missing data from 42 states! It also weights transactions—a $700,000 home gets weighted twice as heavily in their index as a $350,000 home. But isn’t a 10% decline a 10% decline, regardless of the baseline? Apparently not.

Dramatic headlines sell papers--remember all the 2004-2005 headlines screaming Buy! Buy, Before You're Priced Out Forever! Doesn't sound like a great idea in hindsight, does it?) While I’m definitely not saying that those in the industry can’t spin stats better than a Maytag, I did find this little tidbit from the NAR pretty interesting:

“Another factor that rarely gets attention is that Dr. Shiller, a Yale professor, has a side business in Chicago. His index is used at the Chicago Mercantile Exchange for hedging housing futures values. The more hedging of bets that occur, the more profits go into Dr. Shiller’s bank account. And more hedging of the bets will take place if people believe there will be a crash in housing values. So naturally he has a financial incentive to “scare” the market.”

So what’s a buyer to do? Whom to believe? First, understand the methodology and if one matches up with your situation, pay closer attention to that one. Are you in one CS’s 20 markets and looking to use a no doc loan for a $600K home? CS may be the better measure for you. Are you looking to buy below $417,000? OFHEO may be a better report for you. Want the broadest measure possible? Use NAR. I find that with statistics, perception is reality, and no one calls a market bottom until it’s months behind us, and in the meantime, life goes on. If you’re buying a home, as opposed to an investment property, then do what's best for you, pick a time that works with your life, plan to stay there at least 3-5 years, and buy only what you can afford.

Read more: See my post from last year on Yes, the Market is Down 7% AND up 1%

Read more: from one of my favorite mortgage blogs on spin in the mortgage industry headlines: How Ignoring Adjectives Can Improve Your Understanding of Mortgages

Read more in the Carnival of Real Estate, which included this post. They make the extremely important observation that all real estate is local, so national trends don't mean very much in the first place! Read my posts making similar points here and here. This one is also interesting to look at the very different foreclosure stats, even from county to county, in our area.

Sign up for my newsletter to keep up with DC area trends

Sign up for a first time buyer seminar to learn more about the market

WSJ: "Beyond Auctions" Article on Buying Foreclosures

There's a fantastic article today online in the WSJ: "Beyond Auctions: Ways to Buy Foreclosed Homes."

It explains why there are actually very few bargains to be had in foreclosure auctions, and why buyers (especially first time buyers) need to instead focus on bank owned property (REO). There's a good list of do's and don'ts too. It goes on to say--and I find this to be true--that "Some of the banks will sit [on a property] until they hit their target number -- they may get 20, 30, 40 offers before they're ready to take one....Potential buyers should...put in a realistic bid. You can't expect to bid 50% of the asking price and hope to get it."

Of course there are tons of foreclosures in the Northern Virginia area as a whole, but painting the entire area with one brush stroke can be dangerous. Take a closer look at the foreclosure stats below.


















On the bottom, you can see where Washington, DC, falls compared to other major metropolitan areas. But even that average (about 88 per 10,000 homes) is misleading...Looking at the top part of the chart, I've broken it out by county. You can easily see that DC, Arlington, and Alexandria are a very different market than PG, Stafford, Loudoun, and PW. Are there parts of Arlington that have more foreclosures? Of course. But the moral of the story is to make your decisions based on your specific situation--where you want to live, what type of property you want, etc....and not by a perceived "bargains" of price or availability. You may be surprised at the details behind those "opportunities."

Read more: Blog Post - "I want to buy a foreclosure."

Data Source: GMU Center for Regional Analysis

Read more: Alexandria Real Estate News

Read more: Falls Church Real Estate News

2008 Regional Outlook: "Fundamentals Sound"

George Mason University has updated their 2008 Outlook for the Washington, DC, metro area. It’s fairly consistent with previous presentations (perhaps slightly more positive, in my opinion.) Here are the key findings:

• Local job market continues to be very strong, with Washington, DC, having the lowest unemployment rate of the largest 15 job markets (US average = 4.4%, DC = 3.1%.) (See slide 5.) As I have commented here before, the job market is a great indicator of the housing market to come—people go where the jobs are, and they need a place to live. Because this area doesn’t have particularly high vacancy rates in rentals, that translates into pressure on rents (thus providing an incentive for renters to buy), or more demand for homes.
• This area has significantly fewer foreclosures (as measured per 10,000 units) than most large metropolitan areas in Florida, California, and the rust belt. DC (22), Arlington (27), and Alexandria (34) have the fewest foreclosures of any local county. (See slide 13) Think about those numbers for a minute. For every 10,000 homes in the District, just 22 are in foreclosure. This is consistent with other posts I’ve made about this area having two different markets—close in neighborhoods versus outlying suburbs.
• Days on market has increased significantly. (However, this can easily be misinterpreted—see my post on “Some Sellers Get It—And Get It In 30 Days!” Total units sold have declined (duh). Total active listings have increased (again, duh.)
• Percentage change in inventories has slowed dramatically and is consistent with 2003 levels. (See slide 23). We still have quite a backlog to work through, but at least for now it doesn’t appear to be getting any worse.
• Outlook: “Fundamentals are sound, 2008 will be moderately better than 2007.” (And by “better,” of course, they mean better for sellers.) “Housing prices will be flat until at least Spring & will be a mixed story across the region—some jurisdictions will be negative and others showing increases.”

So in summary, all real estate is local, and the DC market is, all things considered, not a bad place to be right now.

(If you found this interesting, see my related post: When will the DC real estate market turnaround?)

Some Sellers Do "Get It" - And Get it in 30 days!

The average Days on Market (DOM) is a good yardstick to measure whether housing inventory is moving. Generally, the higher that number goes, the more leverage a buyer has in negotiating. As the number ticks up, sellers get more and more anxious; buyers start to think: “What’s wrong with that house that it’s been on so long?”

There are two DOM statistics – Days on Market (MLS) and Days on Market (Property), or DOMM and DOMP. DOMM measures the days that a property has a particular MLS code attached to it. The MLS code is a two letter county abbreviation and 7 digit number, so something like AR1234567. DOMP measures the days that a physical address has been listed (though there are ways to cheat the system on this.) DOMP is a better indicator for buyers to use.

The average DOMP for active listings in Arlington right now is 107. (The average DOMM is 87, FYI.) That means, on average, each listing has been sitting for over 3 months. Looks pretty heavily in the buyer’s favor, right? Sellers appear to just not understand that they’re priced too high. But let’s look closer.

Looking at the 174 successful settlements for October 2007 in Arlington, I’ve graphed how long they were on the market prior to sale. We can see from this chart that the average of 107 (which would fall into the last column) isn’t a good representation of “successful” sellers. In fact, 45% of successful sellers had a contract in under a month, and almost 60% had a contract in under 60 days!

What are the implications of this?

• There are buyers out there for properties that are priced correctly.

• If a property is priced correctly—that is, the sellers “get it,” there is a good chance it will be under contract in 30 days, and a very good chance it will sell in under 60.

• On the other hand, for those sellers that don’t “get it”, the property will very likely sit for a long time—over 4 months. Right now there are 295 active listings in Arlington that have been on for over 4 months. In October, 34 settlements had a DOMP of that long. That means only 34 of 329, or about 10%, sold. Sellers, if you've been on for over 4 months you have only a 10% chance of selling. If you list a home and think, well we'll have an offer in 3 or 4 months--you're just not getting it!

In summary:

• Sellers – Price it right quickly, and it will sell quickly. There are buyers out there, but they are savvy and demanding.

• Buyers – Don’t assume that you have 3 months to make up your mind on that home you love—it could very well be gone if the seller already "gets it." If it’s priced well, the market will respond accordingly. How will you know if it’s competitively priced? Work with an agent, track micro-markets, and be actively looking in those micro-markets. Looking at an “average” won’t be enough.

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.

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.

Parkside Alexandria

Here's an interesting new twist for builders trying to liquidate inventory: the live auction. Parkside Alexandria, a condo community on Van Dorn St, is selling 30 condos with a minimum bid of $225K for a 2BR/1.5BA unit. There certainly aren't too many 2BR units inside the beltway for that price. There are some catches, of course - you must register by 10/23, sign the contract on the spot if you win, bring $5000 with you, and close before Nov 27, among other things. More details are here. Of course there are also the usual risks inherent to new construction. Contact me to discuss more on these.

One quick note of warning -- if you intend to use a real estate agent to advise you and help review the contract(at no additional cost to you), make sure your agent is with you when you register or the builder will not allow you to be represented.

Looking for Alexandria real estate news? Read our new blog here.

"I want to buy a foreclosure."

I'm interested in foreclosures is something I often hear from clients, but few people really understand the process, and specifically what it means to buy a foreclosed property. It's not for the faint of heart. Though you can occasionally find a bargain, there are unique risks involved with buying a foreclosed or bank-owned property. First, let's clarify some definitions.

It's possible that someone can be "upside down" on their mortgage (that is, they owe more on the mortgage than the property is worth) and antsy for a quick sale before it gets worse. In this situation, the seller is said to be "bringing money to the table" because they literally need to write a check to the settlement company even AFTER receiving the proceeds from the buyer. The seller hires an agent (in most cases) and the property is listed in the MLS--the buyer may or may not even be aware that the seller is in this situation. But what if the seller doesn't HAVE funds to bring to the table? Then it becomes a...

Pre-foreclosure or "short sale": The bank is a third party to this transaction because they have negotiated with the seller to take a loss on their loan. The property will likely be listed in the MLS, but there are special addendums and disclosures because the bank has to approve any contracts. In some cases, this delays the process, which can make timing for a settlement and move date tricky. Read more about short sales in my previous blog entry here. If no buyer is found, then the property becomes a...

"Foreclosure" or trustee sale: This is the proverbial auction on the courthouse steps. Properties are advertised in the newspaper, but typically no real estate agents are involved (because there are no commissions paid--can't blame us for staying away from those!) Note that the property may or may not be vacant at this point...a buyer may be forced to evict the previous owner. This isn't typically the auctions you'd think with bidders standing around with placards. The bank is unlikely to take a bid less than what is due on the loan, and if there's no equity in the property, why would someone buy it? So you need a property that's worth more than the loan, and if that was the case then it wouldn't be a foreclosure to begin with! So most auctions quietly pass with no bidders. If you do wish to bid, it's typical for the bank to demand a 10% deposit at the auction, and you have 15 days to close. These properties are typically sold "as is." If it's a condo, the seller (the bank) is not required to provide you with condo or HOA docs, as in other sales. If the "auction" ends with out a winning bidder, the property moves to...

"Bank Owned" or "REO" (Real Estate Owned): The bank usually works with a Realtor to list the home in the MLS and it's advertised just like any other property. They are usually sold "as is" (no home inspections) and special addendums are required. The addendum is sure to include a penalty for any change or delay in closing--anywhere from $65 to $200/day. While the banks are quick to penalize buyers for any delays, they don't usually hold themselves to the same standards--Some banks have very quick turnaround time on offers (days) and some have very bad turnaround time (months). This uncertainty makes settlement and move-in dates are very tricky, if not impossible, to manage. I've seen buyers put in an offer and wait 3 months only to be told that theirs was not the winning offer. This is typically also not an option for anyone with a brokered loan or stated income loan, again, because the timing is so difficult to manage.

I've found that the only REO properties that are priced significantly cheaper than the market are those that are in very poor condition, and maybe not such a bargain at all. There are always exceptions, and yes, a handful of really great deals out there. But to limit yourself to "foreclosures" is cutting off some of the best deals out there! I've actually found that the best "deals" are where sellers have some equity and can actually afford to sell below market, and have the incentive due to a life change (new job, new baby, etc.) to motivate them!

So to recap: Most people who are looking for "foreclosures" are actually looking for "short sales" or "REO/Bank-Owned" properties. Both categories of sales come with unique risks--specifically:

1) timing--if you have a specific timeframe for moving, make sure you have a backup option for living space
2) financing - related to timing
3) property condition--you won't get to ask for repairs, and may not even be allowed to have a home inspection prior to buying

My advice? Look at all the listings, not just "foreclosures"--which we now know really means short-sales and REO, in your price range. You never know where you're actually going to have the most negotiating power!

Yes, the Market is Down 7% AND Up 1%

Hooray - an article from the Post that is SO useful in interpreting the doomsday real estate stats--and also the overly optimistic ones--that we read about. It dives into detail on the methodology of two housing reports released two days apart: one from OFHEO that claims a 1.2% price increase for the year, and another from S&P claiming a 7% drop.

The headlines might as well read: Lies, Damn Lies, and Statistics. The moral of the story being that anyone who understands anything about data can twist it to say just about anything they want (as an ex-consultant, I know this applies to other fields, not just real estate!)

The article is very insightful and points out that neither stat is completely representative. As usual, the truth probably lies somewhere in between. The author hits the nail on the head in the last paragraph:

Don't overreact when you see big drops -- or jumps -- in these indexes. They are measuring different things, and no national index gets down to the nitty-gritty: what's happening to property values in your Zip code, micromarket or neighborhood.

All the more reason to talk to a Realtor when you're thinking about buying or selling--what you read is only part of the story!

Sub-Prime Mortgages: Crisis Averted?

I've posted here before that there were signs that the sub-prime mortgage mess, while unfortunate for many, was not the crisis that the press makes it out to be. The housing market is just too important to this economy, and while no one is screaming "bailout", there have been consistent signs that the country is not going to sit idly by and let millions of people lose their homes.

Today President Bush announced that new programs were being established to help 80,000 people who have fallen behind on their payments. I'd be willing to bet that if conditions worsen, even more programs will be announced. Sure, they'll blame it on the predatory lenders rather than home buyers that made bad decisions, but at the end of the day, no one wants people out on the street. It's in everyone's best interests--from the owners', to the lenders', to the government's, to keep people in their homes.

22 Condo Projects Canceled? Come on, now...get serious.

Let's get serious. Here's another "the sky is falling" example from the press. Today's Post has a good article on some condo projects that have been canceled, and how that situation leaves buyers in the lurch. Sure they get a refund, but no place to live, and no compensation for their efforts. (A good warning on the risks of buying new construction.)

Delta Associates is quoted in the article saying that developers had canceled plans for 22 projects in the 2nd quarter alone! Really...22?! I just don't buy it...unless they're using "plans" pretty loosely. (As an aside, it's not a bad thing that condo projects get cancelled--it keeps inventory reasonable and supports prices.)

I've been hearing about these conversions back to apts for a year or more. And the same developments are always mentioned: the Joule in Arlington, View 14 in DC, the Bellmeade in Leesburg (Leesburg? That’s a VERY different market than Arlington or DC), Four Winds at Oakton, and a few others. Those conversions happened months and months ago. So where are the 22 from THIS QUARTER? Someone please find this list so we can map them out. I'll bet they're further away than this article would leave you to believe. And what counts as a "planned" development? My guess is most of these "plans" are on paper--units were years away from delivery anyway. We'll never see that list in the Post though, because alarmist headlines sell more papers.