Out on a Limb

We enter the next decade with a lot of uncertainty in the real estate market. A big concern is that there are big changes coming in the mortgage industry, which will affect a buyer's ability to qualify. FHA guidelines are changing to reflect their concern over running out of reserves. They have proposed increasing the down payment, which is one of the big attractions to FHA. They have also proposed making the qualification guidelines with regards to the FICO score more stringent. This will affect many potential borrowers, especially in today's economic climate. Also they are making condominium complexes qualify for FHA financing and those rules are very tough, limiting the number of investors in a subdivision and limiting the number of FHA loans in a subdivisions. The scary part of that is that a subdivision that does not qualify for FHA approval is at a real disadvantage and is competing for a narrower buyer pool. It also means that FHA has determined that they have a larger default rate in condominium subdivisions and they are looking to limit their exposure. These changes are something we will keep a close eye on and we will keep you informed. Another upcoming change is that has real potential for disaster is the government getting out of buying mortgage backed securities. This requires a lengthy
explanation but the shorter version is that when the mortgage industry collapsed , no one would buy our mortgages on the secondary market because they had been burned and they felt
the risk was too high. The banks initially originate the loans and some keep them in their own portfolio but the vast majority are packaged together according to underwriting guidelines and sold on the secondary market through Fannie Mae and Freddie Mac. With no one to buy them, the money dried up until the government stepped in and said that they would buy them. Well, come March they will no longer be buying them. They say they are out of money or it may just be that they feel the market has improved enough and the time is right for the banks to step back in and start selling them on their own. At a minimum I would expect to see rates bump up in an effort to attract outside inventors to buy. Worst case is that no on e buys them and once again loan money becomes scarce. This is serious threat to the health of our market. and according to powers that be, could result in shrinkage of possible 10%! That is a big one to watch and we will keep an eye on it. Lastly, the foreclosure mess. Yes, we are a fishing boat in the fog and somewhere out there is a cruise ship bearing down full steam ahead. It may hit us, it may not, but it is there, and it is coming. (Sorry about the bad analogy but it took me a while to even come up with this one). We have seen foreclosure activity drop off (in our area not nationally) and what does come on gets absorbed. The powers that be say another wave is coming and I have seen LOCAL numbers that confirm that BUT the question now is if our local market is strong enough to absorb what comes. If so, the impact will be minimal but, if not, then we will see inventory climb which will slow down our recovery. Those are currently the big three potential impacts on our market place. I say currently because tomorrow could bring some fresh challenges; I do not think so but then who knows. That being said I am totally optimistic about the new year. I think our numbers will continue to improve and I think consumer confidence will continue to grow. I look for our market to start early and it is a smart move for our clients to get out in front especially given the uncertainties mentioned above. The lower price ranges will continue to lead in activity but it will continue to filter up through the rest of the marketplace. It is an exciting time full of challenges and opportunities and as it continues to unfold I will as usual keep you informed.

Front Lines

What can I say about 2009 except that I am glad it is behind us. The market was consistent and showed a slow but steady improvement. It was, though, a year filled with challenges. Financing guidelines changed constantly; appraisals were neither accurate nor timely' foreclosures and short sales dominated the marketplace' banks set their own rules; title companies were bogged down and under staffed; and , well, you get the picture. I would have to say that when the smoke clears we will recognize the bottom of the marketplace as having occurred in March of 2009. Improvement in the market actually started June of 2008 but March of 2009 was when the turnaround took hold. In certain sectors of the market we have seen a 10%-17% "bump" in pricing as buyers compete for limited inventory. This is where pricing got lower and lower and lower until finally buyers started flocking into the market and created a "bounce." This is most evident in the townhome market where multiple offers and are the rule of the day. As the year progressed we have seen this level of activity work it's way up through the different pricing points and while it has not yet reached the highest end, I expect to see that change. Consumer confidence played the biggest part in this as buyers finally decided that they needed to get in the market or miss the opportunities it offers. Many did miss it as all cash investors bid up properties and first time buyers found they could not compete. We had one client that we wrote 12 offers for and she did not get one. Most were full price or higher than full price but she was in a competitive situation each time and she could not go price-wise to where the property finally sold for. Now those sales are comps and the prices are out of her reach. Now, that activity was in the entry level, first time buyer price range and that is not the case in every price category but it is indicative of the turn in the market and illustrates how the pricing can jump up 10% to 17% on a market "bounce". The number of foreclosures coming on the market has dropped significantly since the beginning of the year and the increased activity in the lower ranges takes them off the market quickly and typically at higher prices than where they are listed. Move up buyers are finally able to get sold and take advantage of the lower prices in the next range up and actually gain some ground. Short sales are still not systemized with every bank but they are with many of them. Unless someone that actually knows how to do them properly handles them, they can be a nightmare and even then with certain banks they are extremely difficult.

All that being said, our pricing stabilized in all but the highest price ranges and actually increased in the lowest levels. In 2004, the highest year, 1503 townhomes were sold in Centreville and in 2007, the lowest year, 648 were sold. In 2009, 1057 were sold. Not the peak but a great number. Likewise in April of '09 the average list price of a townhome coming on the market was $243,600 and the average list price of one that closed that month was $244,535. In December it was $278,085 for the new listings and $259,462 for what sold. The total number of townhomes available January of '08, was 299 by January of '09 that had dropped to 161 and as of the last day of December '09 there were only 39 available.

Likewise for single-family homes, we sold 533; the high water mark for single family home sales in '03 and the low mark was 271 in '06. This year we sold 339, improvement that is for sure and a trend that I hope to see continue in 2010. Because there is such a wide swing in the single family home pricing (200,000-2,000,000) average sale and list prices are not the most accurate indicator. Fact is that in the lower price ranges those prices increased somewhat and in the upper ranges they continued to fall. The good news is the inventory levels. In January of '08 we had 138 single-family homes available, by January of '09 that has dropped to 70 and we closed out '09 on a positive note with only 31 available. All told, 2009 with all of it's trials, tribulations and challenges was a positive year for our market. As 2010 unfolds I will, as usual, keep you informed.