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.

Out on a Limb

Our inventory for the most part has remained consistent for the last 3 months and unless the banks dump a huge batch on us we should see it shrink further in the next couple of months. As is typical in this time frame the folks that only "want to sell" but do not "need or have to sell" are dropping out of the market. Most will come back on the market in the Spring when there is a little more optimism in the market. Those that "have to sell" always dominate the market in this time frame as they do what it takes to get their home sold and that means dropping their price. This forces out the "want to sells" as they just can't or won't compete. The "need to sells" hang tough but typically can't compete unless they have some exceptional feature. That being said, inventory is dropping and consumer confidence is building. There is some urgency being created by the uncertainty of the extension of the first time buyers tax credit and by the fact that some of the higher loan limits are disappearing in the neat future. Good properties that are selling especially in the lower price ranges although I do look for that to slow somewhat between now and the beginning of the year. For buyers, your choices are getting slimmer and on those good properties or good values there is competition. This is the time though to get a good value especially in the higher ranges as those that are on the market are typically motivated to get their home sold, not in every case but in many of the cases. I look for values to remain steady for the balance of the year. in 2010 I look to see a stronger market that continues to improve. It will be a good market and if we can avoid the foreclosure influx it has the potential to be great. Not a 2003, but an improvement for sure.

Front Lines

Well, the weather has gotten cold but the market has warmed up a bit. Fair amount of activity although it remains in the lower price ranges. There is a little activity and it is slowly moving up through the price ranges. We put a nice property on the market at $550,000 (which the seller and I agreed was a stretch in looking at the comps) on a Friday and got a darn good offer on Sunday. Home inspection is done and we are all wrapped as of Thursday. We have another home that we feel is very well priced at $599,900 and there are no lookers at all. Go figure. We were recently at the NVAR Convention and it was a common theme that inventory was getting very difficult to find in the $500,000 and under category which is a bump up from the $400,000 and under of previous months. Town home inventory has dropped just a tad and the number of sales has increased from last month and both categories are significantly improved from the same month last year. however, if you look at the average number of sales per month for the same time frames it is exactly the same at 30 sales per month, so some of the buyers that bought earlier in the year are buyers that typically would have waited. How is that for looking at the glass half full?! The number of new listings coming on is substantially lower this year for single family homes as well as for town homes. Not much different this month from last month the the exception that the number of distressed properties in the $500K to $700K range tripled since last month. I do not read much into that short of how it played out this month. We still are not seeing a significant jump in new foreclosure activity and that is certainly something we are watching closely. Let's hope it stays that way. As our market continues to unfold, I will as usual keep you informed

Out on a Limb

I am looking for September to show better numbers than our August as buyers look to take advantage of the values in our marketplace. The first-time buyers market should see an increase in activity as buyers get off the fence to catch the first-time buyers credit of up to $8000 that is set to expire on December 1st. This is a wonderful program and we are hoping that it gets extended but there is no talk of that at this point. Investors also continue to drive our market and rightly so as this is one of the few times in my career that there are good choices and options available for positive cash flows. The higher end of the market place will not see that much of an increase if they see any at all for a number of reasons. First, relocation buyers are much more active in spring and to a lesser extent summer as they look to get in before school starts. They will be few and far between in the fall market. Second the move up market has been virtually non-existent this year. Even at the current foreclosure levels sellers looking to move up have a hard time competing with bank owned properties. Lastly, this is typically the time of the season that the "have to sells" drop their prices to rock bottom so that they can hopefully get sold before the last quarter of the year. Those that "want to sell" or even "need to sell" just cannot compete price wise with those that absolutely "have to sell" their home. At the end of the day I see the market in the next 30-50 days staying strong for homes priced fairly in the under $500,000 range and I look to see activity over that range stay the same at best. We will closely monitor the foreclosure activity and keep you informed as usual.

Front Lines

August saw the market shift very subtly. The number of new listings coming on the market in each category was less than the same month last year, which is good. There were fewer sales in each category compared to last year and last month, which is not good. Sales of both town homes and detached single-family homes dropped a solid 25%. Inventory virtually stayed the same with 49 town homes currently listed as compared to 51 last month and 46 single family homes compared with 48 last month. It is still great compared to last year in the same time frame when we had 213 available town homes and 129 available single family homes. One good sign is that the number of new listings coming on the market is still well below 2008 levels for the same month. Since a large majority of the new listings are distressed properties (foreclosures and short sales) I consider this a good indicator. We have seen consistent improvement in our marketplace for the last year but as I said in the beginning we have been seeing an almost imperceptible stabilizing in the last 30-60 days in both categories. This could be attributed to any number of factors including the typical summer slow down we used to see the marketplace 20+ years ago. Given how fast the summer seemed to fly by, that may very well be the case. If so we should see a little burst of activity as our fall market begins. The bigger concern is the threat of the foreclosure tsunami I mentioned in last months "Front Lines" It is a good thing that we have not seen an influx of inventory come on the market, as that would indicate that the forecast was coming true. Our market is strong and if it continues at the pace that it has for the last year then we should be able to absorb a sudden increase of inventory in the town home market very easily. If the slower pace of August continues we may have difficulty if indeed that tsunami does come. I have always maintained that it is a bit "if" as to whether or not we get that next wave. Unfortunately that may not be an "if" at all. I am a member of a group that has access to some of the highest of the higher ups in the mortgage business and we have seen some stats that are specific to our local market area. There is one specific lender that is one of the if not the largest on a national basis and certainly the largest in our marketplace. Within his company the number of existing foreclosures (those already foreclosed upon) is less than half of what it was at the peak in fall of last year. That is the good news. The bad news is that the number of home owners that have received notice that they are beginning the foreclosure or are going to a trustees sale has more than doubled from the low point and is up 70-80% over the months preceding the high point of active foreclosures. This is the largest national lender. This is their number and you have to assume that all the other ones have proportionally the same numbers. This is specific to our market. This is not Florida numbers or Nevada or California; it is Northern Virginia numbers. So that tells me that the next wave is indeed going to impact our market and there is no longer question that it is coming. The question now becomes is if our strong (relative to the rest of the country) marketplace can absorb these and keep on gradually moving forward. It is important to note that the reason for this increase in foreclosures is due to one particular type of loan that is now adjusting to higher rates and payments. These loans were typically used by those that are stretched financially anyhow and have the least ability to absorb a higher payment rate. They cannot refinance because their home no longer appraises at the value necessary to support their loan amount. So the only option is a short sale or letting the home go to foreclosure. The next few months should be interesting as usual I will keep you informed as our market continues to unfold.

Out On A Limb

By Spencer Marker
All my beliefs are based on the numbers that I share with you every month and I see them continuing to improve. It does not feel like the market is getting better every day but the truth is in the numbers. I believe that we will see the same trends continue as investors and first time buyers get into the market. This will keep the lower end of the market hopping. The higher end will continue to plod along but eventually we will see more and more move up buyers as the inventory gets gobbled up on the lower end. During the 4th quarter I do not see pricing changing significantly in the lower end and I expect to see some drops in the higher end of the market. There is surplus inventory in the higher end and those that have to sell will lead the market down in price. There is enough demand in the lower price ranges that will will probably not see that occur. All that being said there are some things that could set us back a bit. The first is the tsunami of foreclosures that the powers that be say is coming in the fourth quarter. I was one that underestimated the extent that the foreclosure mess was going to affect our market so I have to give credence to those that say this is coming because they were right last time. BUT, I do see our demand in our LOCAL market exceeding any other market in the country and I think these homes are getting sold now as short sales prior to them going to foreclosure. So, in the spirit of going "out on a limb" I am optimistic that we are through the worst of it and our market is strong enough to absorb what foreclosures we do get and not have them flood our market again. A lot of what is driving the 1st time buyers is the tax incentive of $8000 to buy your first home. That is slated to go away at the end of the year. It is an effective tool that is working so I would hope that it would be extended but you never know. Rising interest rates, more restrictive lending programs, inflation, even rising home values all could have an effect on our marketplace but I do not see that happening. Our local economy is strong and getting stronger, our unemployment is one of the lowest in the nation and we are one of the best areas for job creation. I am confident that the worst days are behind us and we are moving forward. As our market continues to unfold I will as usual keep you informed.