Washington Post, December 23, 2006
By Kenneth R. Harney
You may be thinking about the holidays, but thousands of your fellow homeowners have been thinking about refinancing, rate reductions, cash-outs and money-saving debt consolidations.
For the past two weeks, they have been bombarding lenders with applications for mortgage refinancing -- driven by the most attractive rates in more than a year. Refinancings were up in mid-December by 60 percent over the corresponding period last year, and they accounted for more than half of all new mortgage applications -- the highest proportion since the spring of 2004.
Thirty-year fixed rates slipped below 6 percent two weeks ago, and although they have rebounded slightly, they are still nearly a percentage point below where they were last summer. Fifteen-year fixed-rate loans in the mid-to-upper 5 percent range are readily available to applicants with solid credit.
Could a holiday-season refi be in the cards for you? Maybe, but it probably depends on whether you fit into one of several categories where today's rates make a lot of sense:
? You have an adjustable-rate mortgage that's scheduled to reset into higher payments in the six months ahead. Your loan might be a payment-option mortgage, an interest-only mortgage originated in 2003 or 2004 with a three-year reset, or simply an adjustable tied to short-term Treasury rates that's already costing you more than the fixed-rate alternatives.
- You have a "piggyback" first-and-second mortgage package that was originally intended to let you purchase your house with a minimal or zero down payment while avoiding mortgage insurance premiums. But now the floating-rate second is above 8 percent and you want to bail.
- You need cash for a home improvement, a business investment or a vacation home now available at a bargain price. Even though the fixed rate on your first is below 6 percent, the opportunity to cash out thousands of dollars and refinance into a larger replacement mortgage is compelling, even if the rate is a little higher.
So many current homeowners fit into these categories that Anthony Hsieh, president of LendingTree.com, the online network of 200-plus mortgage companies, predicts that this month's refi boomlet could stretch into 2007 -- provided, of course, that rates remain close to 6 percent.
"This has legs," he said in an interview. "This is no head fake; it's for real" because mortgage money at 6 percent offers such exceptional problem-solving opportunities.
For example, Douglas G. Duncan, chief economist for the Mortgage Bankers Association, estimates that $1.1 trillion to $1.7 trillion of adjustable-rate mortgages are scheduled for payment resets in the coming 12 months, and that $600 billion to $700 billion is likely to be refinanced by homeowners eager to avoid higher monthly outlays.
Some of these loans are "nontraditional" mortgages that combine low initial payment periods with drastically higher payments after several years. For thousands of those borrowers facing big payment jumps -- 50 percent, 100 percent or more -- a refi into a fixed-rate mortgage is a no-brainer, according to Duncan.
Other people who purchased during the housing boom years using popular "3/1" adjustables in the mid-4 percent range for the initial three years now face significantly higher payments because short-term interest rates today are much higher.
Consider this example provided by LendingTree: Say you bought your house in late 2003 with a $200,000 "3/1" adjustable at 4.375 percent with a margin of 3.75 percent and a 20 percent down payment. Your principal and interest payments have been $998.57 for the first three years. But now you face a reset into a 7.53 percent rate on your $197,000 balance -- and a monthly payment hike of $383.
Your alternative: Refinance into a new 30-year, fixed-rate, $197,000 mortgage at 6.1 percent. Sure, your payment will be about $195 higher than your current 4.375 percent rate, but not what you would pay if you stuck with your current loan's post-reset rate.
Here's another scenario: Say you have a great rate on the $200,000 first mortgage that you took out in 2002 -- 5.5 percent. But you need $25,000 cash for kitchen remodeling or a business investment. On the one hand, you hate to get rid of a once-in-a-lifetime 5.5 percent rate. However, you have the opportunity to pull out the $25,000 with a refi, add it to the $192,500 balance on your current loan, and walk away with a new $217,500 replacement mortgage at 6.1 percent fixed for 30 years.
Your new monthly payment: About $184 higher than your current.
A gift from Santa? Hardly. Cash-out refis cost money. But your 6.1 percent fixed rate -- not far above 40-year record lows -- should still look good years from now.
23 December 2006
Price, Condition, Site Grab Buyer Attention
Washington Times, December 22, 2006
By M. Anthony Carr
One of the biggest mistakes sellers make in a buyer's market is trying to price their houses with a "cushion" in the asking price for negotiation room. In the current market where most sellers find themselves, it's all back to price, condition and location.
Pricing the house from the start is the first offensive strike the seller possesses in his arsenal. The best way to determine price in our market is to start looking at two categories of real estate: solds and actives.
Properties that have sold in the last 30 days -- solds -- provide you a picture of what price range pulled in offers 60 days ago. By looking over those properties, you'll know if you're headed in the right direction with your price.
Then, after seeing what's pulled in offers, look at where the competition is priced -- actives -- and price lower than the lowest price. If the trend is headed downward during the last 12 months, the motivated seller will get in front of that price trend and sell for less than everyone.
This can be an emotional ordeal for sellers. The seller who approaches the sales price of a house like the asking price of a used car -- where negotiation and give-and-take is expected -- will also be calling the movers sooner and get through the transaction with the least amount of emotional turmoil.
Condition is the second part of this equation that sellers have control over in today's market. It's got to look new, period. Here are the steps that must be taken for a successful sale.
• New paint everywhere. Don't leave one room unpainted. Paint is the cheapest, yet most effective way to give a house a face-lift.
• New carpet and flooring. New flooring and paint make people drop open their mouths with "wow."
• Replace the small things. Attention to detail can make a big difference for buyers. New faucets throughout, new hardware on the doors, and new switches and switch plates take the house from merely cleaned up to new.
• Deep clean. I always have to mention this because a lot of sellers still just don't get it. It's still amazing to me how many people will leave a house in the "un" condition: unvacuumed, undusted, unwashed. Invite friends over for a deep cleaning or hire it out. This is a must, no questions asked.
• Do the windows. Get all the windows cleaned and caulked. The house may look great from the inside, but if you can't look outside because of the dusty film over the glass, steps one through four could be for naught.
Finally, location is what buyers are looking for. I saw a listing the other day that was obviously connected to a realistic agent and seller. It was a lot of house for the price with the larger than 1-acre lot, and it was "priced for location" because the house backed to a very busy four-lane highway.
The comps in the neighborhood were almost $100,000 more.
While you may not be able to do anything about the location of your listing, you can definitely spin the benefits of where it's located. Near commuter routes means the house is next to big highways. For some shoppers who just want to get home quickly after work, this is going to be a benefit, but only if you market it that way.
Sell the lifestyle of the house as much as the amenities of the house itself. With prices dropping in some areas, headlines such as "quit commuting," "walk to everything," and "cut your gas bill" are more and more enticing.
The third-acre to 1-acre lot doesn't look as good after the 75-minute commute. Some commuters are looking to move back in to the work centers.
Market to buyers outside the community who would find your neighborhood attractive. It's amazing how many buyers won't mind a busy two-lane street when they've been overlooking the Beltway for years.
Remember to market the benefits that you liked about the house when you bought several years ago.
By M. Anthony Carr
One of the biggest mistakes sellers make in a buyer's market is trying to price their houses with a "cushion" in the asking price for negotiation room. In the current market where most sellers find themselves, it's all back to price, condition and location.
Pricing the house from the start is the first offensive strike the seller possesses in his arsenal. The best way to determine price in our market is to start looking at two categories of real estate: solds and actives.
Properties that have sold in the last 30 days -- solds -- provide you a picture of what price range pulled in offers 60 days ago. By looking over those properties, you'll know if you're headed in the right direction with your price.
Then, after seeing what's pulled in offers, look at where the competition is priced -- actives -- and price lower than the lowest price. If the trend is headed downward during the last 12 months, the motivated seller will get in front of that price trend and sell for less than everyone.
This can be an emotional ordeal for sellers. The seller who approaches the sales price of a house like the asking price of a used car -- where negotiation and give-and-take is expected -- will also be calling the movers sooner and get through the transaction with the least amount of emotional turmoil.
Condition is the second part of this equation that sellers have control over in today's market. It's got to look new, period. Here are the steps that must be taken for a successful sale.
• New paint everywhere. Don't leave one room unpainted. Paint is the cheapest, yet most effective way to give a house a face-lift.
• New carpet and flooring. New flooring and paint make people drop open their mouths with "wow."
• Replace the small things. Attention to detail can make a big difference for buyers. New faucets throughout, new hardware on the doors, and new switches and switch plates take the house from merely cleaned up to new.
• Deep clean. I always have to mention this because a lot of sellers still just don't get it. It's still amazing to me how many people will leave a house in the "un" condition: unvacuumed, undusted, unwashed. Invite friends over for a deep cleaning or hire it out. This is a must, no questions asked.
• Do the windows. Get all the windows cleaned and caulked. The house may look great from the inside, but if you can't look outside because of the dusty film over the glass, steps one through four could be for naught.
Finally, location is what buyers are looking for. I saw a listing the other day that was obviously connected to a realistic agent and seller. It was a lot of house for the price with the larger than 1-acre lot, and it was "priced for location" because the house backed to a very busy four-lane highway.
The comps in the neighborhood were almost $100,000 more.
While you may not be able to do anything about the location of your listing, you can definitely spin the benefits of where it's located. Near commuter routes means the house is next to big highways. For some shoppers who just want to get home quickly after work, this is going to be a benefit, but only if you market it that way.
Sell the lifestyle of the house as much as the amenities of the house itself. With prices dropping in some areas, headlines such as "quit commuting," "walk to everything," and "cut your gas bill" are more and more enticing.
The third-acre to 1-acre lot doesn't look as good after the 75-minute commute. Some commuters are looking to move back in to the work centers.
Market to buyers outside the community who would find your neighborhood attractive. It's amazing how many buyers won't mind a busy two-lane street when they've been overlooking the Beltway for years.
Remember to market the benefits that you liked about the house when you bought several years ago.
Mortgage Applications Surge on Decline in Rates
Wall Street Journal, December 14, 2006
By Rex Nutting
The volume of applications for mortgages from major U.S. banks climbed to the highest level in more than a year last week, the Mortgage Bankers Association reported.
Applications, encompassing both those for loans to purchase homes and for refinancing of existing mortgages, increased 11.4% last week from the previous week to the highest level since October 2005. Total applications are up 22.2% compared with the same week a year ago. Application volumes had been down by double-digit percentages for most of the year.
Lower mortgage rates have spurred a rebound in loan applications, said Mark Fratantoni, senior economist for the mortgage bankers group, in a news statement. Average rates have fallen about 0.8 percentage point since early summer, he noted.
Applications for a loan to buy a home rose 8.7% last week compared with the previous week, reaching the highest level since January. Purchase-loan volumes are down about 3% compared with the same week a year ago, the smallest year-over-year decline since January.
By comparison, home sales are down about 14% compared with a year ago.
The refinancing boom continued last week: Applications for refinancings rose 15.8% to the highest level seen since September 2005. Refinancing applications are up about 60% from a year ago.
Refinancings accounted for 52.6% of all applications, representing the greatest share since April 2004.
Lower mortgage rates have spurred a new refinance boom as borrowers flock to lock in lower rates or to get out of adjustable loans that are about to be reset at higher rates.
The average rate for a 30-year fixed-rate mortgage rose to 6.02% from a 14-month low of 5.98% the previous week. Since June, the benchmark rate has fallen from 6.86%.
The rate for a 15-year fixed-rate loan, a popular vehicle for refinancing mortgages, averaged 5.75%, up from 5.66% a week earlier, which was the lowest rate since January.
The average rate for a one-year adjustable-rate mortgage dropped to 5.76%, the lowest rate since March and down from the prior week's 5.79%. ARMs accounted for 24.9% of loan applications, up from a three-year low of 23.9% set the previous week.
By Rex Nutting
The volume of applications for mortgages from major U.S. banks climbed to the highest level in more than a year last week, the Mortgage Bankers Association reported.
Applications, encompassing both those for loans to purchase homes and for refinancing of existing mortgages, increased 11.4% last week from the previous week to the highest level since October 2005. Total applications are up 22.2% compared with the same week a year ago. Application volumes had been down by double-digit percentages for most of the year.
Lower mortgage rates have spurred a rebound in loan applications, said Mark Fratantoni, senior economist for the mortgage bankers group, in a news statement. Average rates have fallen about 0.8 percentage point since early summer, he noted.
Applications for a loan to buy a home rose 8.7% last week compared with the previous week, reaching the highest level since January. Purchase-loan volumes are down about 3% compared with the same week a year ago, the smallest year-over-year decline since January.
By comparison, home sales are down about 14% compared with a year ago.
The refinancing boom continued last week: Applications for refinancings rose 15.8% to the highest level seen since September 2005. Refinancing applications are up about 60% from a year ago.
Refinancings accounted for 52.6% of all applications, representing the greatest share since April 2004.
Lower mortgage rates have spurred a new refinance boom as borrowers flock to lock in lower rates or to get out of adjustable loans that are about to be reset at higher rates.
The average rate for a 30-year fixed-rate mortgage rose to 6.02% from a 14-month low of 5.98% the previous week. Since June, the benchmark rate has fallen from 6.86%.
The rate for a 15-year fixed-rate loan, a popular vehicle for refinancing mortgages, averaged 5.75%, up from 5.66% a week earlier, which was the lowest rate since January.
The average rate for a one-year adjustable-rate mortgage dropped to 5.76%, the lowest rate since March and down from the prior week's 5.79%. ARMs accounted for 24.9% of loan applications, up from a three-year low of 23.9% set the previous week.
Online Alternative to Foreclosures
MortgageKeeper Aims to Connect Troubled Borrowers with Counseling
Inman News, December 14, 2006
By Matt Carter
With the cost of foreclosing on a property running $40,000 or more, it's no surprise that lenders would rather continue receiving loan payments from borrowers than resort to taking their homes away.
But homeowners get into trouble on their mortgages for many reasons, which can make helping them through difficult times complex.
Some borrowers may simply be overwhelmed when an adjustable-rate mortgage resets to a higher rate, and monthly payments become unmanageable. Others may be coping with the loss of a job, unexpected medical or home repair bills, rising utility bills or a substance abuse problem.
Chances are, a lender's collections department can't offer much advice or assistance to borrowers who are coping with issues that aren't related to the terms of their loan. Even credit counselors aren't the best source of advice for problems that are more than just financial.
But there are hundreds of nonprofits around the nation that are qualified and equipped to help people work through such issues. Ithaca, N.Y.-based MortgageKeeper Referral Services Inc. maintains a database of such organizations, providing lenders access to the database for a fee.
The company is a collaboration of J. Michael Collins, who spent more than a decade researching consumers on behalf of mortgage lenders, and Rochelle Nawrocki Gorey, who has 15 years experience working with nonprofit community development organizations.
Collins' past clients included a large government-sponsored mortgage lender, and he's worked with mortgage counseling programs in dozens of cities including Chicago. In focus groups he's conducted with borrowers in foreclosure, many complained that lenders didn't listen to their explanations of the problems they were facing or offer any help, he said.
"We said (to lenders), 'Why not make referrals to local services? There is probably some organization in your community that can help you out,' " Collins said. "The lenders said there is no way to keep up on what services are available."
Nonprofits come and go, Collins said, and the services they provide are constantly changing and can vary in quality.
Collins and Gorey founded MortgageKeeper not only to identify what nonprofit organizations are out there, but to stay current on the services they provide and to monitor the quality of delivery.
"When somebody is in trouble, the last thing they need is to be sent down a blind alley" to an organization that no longer exists or doesn't have the necessary expertise, Collins said.
After identifying potential service providers, MortgageKeeper interviews local experts to make sure they are reputable, and then follows up with people who are referred to them to see if they would recommend the service to others, Collins said.
The work involved in keeping the database accurate, up-to-date and reliable means MortgageKeeper only provides coverage in 15 cities. But those cities were selected because they are among those with the highest rate of foreclosure, and Collins and Gorey plan to add 10 cities next year.
For now, MortgageKeeper tracks nonprofits in Akron, Ohio; Atlanta; Baltimore; Chicago; Cincinnati; Cleveland; Columbus, Ohio; Dayton, Ohio; Dallas; Detroit; Indianapolis; Philadelphia; San Antonio; St. Louis; and Toledo, Ohio. Groups in the database offer services in 17 areas, including job counseling, tax help, assistance with pharmaceutical costs and utility bills, and substance abuse help.
Substance abuse, while "not a huge source of default and delinquencies," was a factor in about 8 percent or 9 percent of foreclosures in studies Collins has done, he said. A family member with a substance abuse problem can drain its finances or keep members from being employed.
Working with borrowers to resolve such issues "is a low cost way to say we're listening to you. We're not going to provide you a free ride, but we're interested in working this out" to prevent foreclosure, Collins said.
MortgageKeeper has been up and running for a year, and so far has five clients that do business nationwide, including the Homeownership Preservation Foundation. The Minneapolis-based group, founded in 2004 with $20 million in seed money from GMAC-RFC, partners with local, state and federal government agencies and nonprofits to keep homeowners out of foreclosure.
MortgageKeeper provides services on a subscription basis, with clients paying a licensing fee for each person accessing its database. This week, MortgageKeeper rolled out a new site, www.NonprofitReferral.org, that provides access to the database over the Web.
Inman News, December 14, 2006
By Matt Carter
With the cost of foreclosing on a property running $40,000 or more, it's no surprise that lenders would rather continue receiving loan payments from borrowers than resort to taking their homes away.
But homeowners get into trouble on their mortgages for many reasons, which can make helping them through difficult times complex.
Some borrowers may simply be overwhelmed when an adjustable-rate mortgage resets to a higher rate, and monthly payments become unmanageable. Others may be coping with the loss of a job, unexpected medical or home repair bills, rising utility bills or a substance abuse problem.
Chances are, a lender's collections department can't offer much advice or assistance to borrowers who are coping with issues that aren't related to the terms of their loan. Even credit counselors aren't the best source of advice for problems that are more than just financial.
But there are hundreds of nonprofits around the nation that are qualified and equipped to help people work through such issues. Ithaca, N.Y.-based MortgageKeeper Referral Services Inc. maintains a database of such organizations, providing lenders access to the database for a fee.
The company is a collaboration of J. Michael Collins, who spent more than a decade researching consumers on behalf of mortgage lenders, and Rochelle Nawrocki Gorey, who has 15 years experience working with nonprofit community development organizations.
Collins' past clients included a large government-sponsored mortgage lender, and he's worked with mortgage counseling programs in dozens of cities including Chicago. In focus groups he's conducted with borrowers in foreclosure, many complained that lenders didn't listen to their explanations of the problems they were facing or offer any help, he said.
"We said (to lenders), 'Why not make referrals to local services? There is probably some organization in your community that can help you out,' " Collins said. "The lenders said there is no way to keep up on what services are available."
Nonprofits come and go, Collins said, and the services they provide are constantly changing and can vary in quality.
Collins and Gorey founded MortgageKeeper not only to identify what nonprofit organizations are out there, but to stay current on the services they provide and to monitor the quality of delivery.
"When somebody is in trouble, the last thing they need is to be sent down a blind alley" to an organization that no longer exists or doesn't have the necessary expertise, Collins said.
After identifying potential service providers, MortgageKeeper interviews local experts to make sure they are reputable, and then follows up with people who are referred to them to see if they would recommend the service to others, Collins said.
The work involved in keeping the database accurate, up-to-date and reliable means MortgageKeeper only provides coverage in 15 cities. But those cities were selected because they are among those with the highest rate of foreclosure, and Collins and Gorey plan to add 10 cities next year.
For now, MortgageKeeper tracks nonprofits in Akron, Ohio; Atlanta; Baltimore; Chicago; Cincinnati; Cleveland; Columbus, Ohio; Dayton, Ohio; Dallas; Detroit; Indianapolis; Philadelphia; San Antonio; St. Louis; and Toledo, Ohio. Groups in the database offer services in 17 areas, including job counseling, tax help, assistance with pharmaceutical costs and utility bills, and substance abuse help.
Substance abuse, while "not a huge source of default and delinquencies," was a factor in about 8 percent or 9 percent of foreclosures in studies Collins has done, he said. A family member with a substance abuse problem can drain its finances or keep members from being employed.
Working with borrowers to resolve such issues "is a low cost way to say we're listening to you. We're not going to provide you a free ride, but we're interested in working this out" to prevent foreclosure, Collins said.
MortgageKeeper has been up and running for a year, and so far has five clients that do business nationwide, including the Homeownership Preservation Foundation. The Minneapolis-based group, founded in 2004 with $20 million in seed money from GMAC-RFC, partners with local, state and federal government agencies and nonprofits to keep homeowners out of foreclosure.
MortgageKeeper provides services on a subscription basis, with clients paying a licensing fee for each person accessing its database. This week, MortgageKeeper rolled out a new site, www.NonprofitReferral.org, that provides access to the database over the Web.
The Unreal Estate Market and Me
Weekly Standard, December 10, 2006
By Jonathan V. Last
The real estate market is a complex beast, one only dimly understood by the mere mortals among us. Thank God we have real estate professionals. Unlike, say, journalists, Realtors undergo hours of rigorous training. They even have to pass a test. So they're a lot like doctors, maybe even priests.
If Realtors are indeed a priesthood, then David Howell is their oracle. After I bought my first home, a condo in Old Town Alexandria, in the spring of 2004, I began receiving a monthly newsletter from the local real estate giant McEnearney. Prominently featured in the three-page mailing is MarketWatch, a column penned by Howell, the managing broker of McEnearney's office in McLean.
Unfortunately, the pronouncements of this particular oracle, while absolute and pure, are sometimes hard to understand and, over time, even harder to reconcile.
When I first started reading Howell's column, in 2004, the real estate market was roaring. He wrote: "Ten More 'Boom' Years? The National Association of Realtors' Chief Economist David Lereah expects the current real estate boom to continue for the next decade. . . . And if you have been reading this space for any period of time, you know that we feel just as strongly about the health of this area's housing market."
In his first dispatch of the following year, Howell asked: "2004 Was Another Record Year -- Could 2005 Be Even Better?" The answer was affirmative. "Despite predictions from many this time last year that the local real estate market would begin to taper off in 2004, it was another record year for home sales in Northern Virginia. . . . Is there any way the market could improve over these staggering numbers? Yes -- with a key exception. We believe that the number of sales will increase in 2005. . . ." In nearly every column he wrote in early 2005, Howell gleefully related the market's enormous gains in sales prices. And although he would sometimes hedge his bets, writing that such runaway increases probably wouldn't last, even he didn't seem to believe it. "While some in the national press continue to talk about a housing bubble that's about to burst, we maintain that 2005 will set new records for the number of sales," he wrote in his February/March column that year. "We had also projected home price appreciation in the range of 7% - 9% for the year. . . . It turns out that, if early indications continue, we were wrong. We weren't optimistic enough! The average price of homes that settled in January 2005 climbed 21% from January 2004 sales, and the median price jumped by 26%. We know this is too early to say that this trend will continue, but we are also seeing the lowest inventory of available homes on the market at any time in at least the last 20 years."
It's hard to square disclaimers about slower appreciation with such statements. But then again, the path to wisdom is an arduous one.
One thing that wasn't hard to understand was Howell's dislike of the media. He has gone after publications from the Nation to Fortune, and he really dislikes The Washington Post. In March/April 2005, he assailed a Michael Kinsley opinion essay in The Post that argued that the housing market was due for a correction -- and that the correction would be good for the country. Howell insisted that there would be no downturn and that, regardless, there was no upside to a real estate crash. "[Y]ou and your colleagues similarly do not understand the dynamics of the residential real estate market," he thundered. "Local real estate professionals do."
By summer 2005, the number of purchase contracts was decreasing precipitously. This caused worry for some people who thought that drops in contracts were often followed by rising inventory and falling prices.
But the oracle was there to steady us. "Has the market finally topped out?" Howell asked. "No, it hasn't. In fact, in most senses the market has never been better." In the July/August 2005 MarketWatch, Howell explained that "the rate of home price appreciation appears to be moderating just a bit. We have stated for some time that the 22-25% home price appreciation that we have witnessed for the last two years is not sustainable over an extended period of time. . . . We fully expect that prices across the board will be rising between 12% and 15% by the end of the year."
By autumn of 2005, the oracle was again troubled by the unbelievers: "[I]t would appear that any number of media outlets have decided that there is money to be made in spreading baseless fear that the real estate sky is falling. . . . Is the market softening? Absolutely. Are properties taking longer to sell? Absolutely. Is there substantially more inventory on the market in Metro DC than this time last year? You betcha." Then Howell dropped the hammer:
"Is it possible that some area home prices might actually go down? Possible -- but not probable. What we are seeing is the expected return to a more normal market after two white-hot years that were anything but normal. Instead of 20-25% appreciation, expect the average price to rise 7-12% next year. . . ."
In his March/April column this year, Howell began with a quote from a local lawyer: "Real estate here will never depreciate." The quote was from 1891. Later in the column, Howell casually mentioned that "we would not go so far as to say that values can 'never depreciate.' Twice in the 1990s, the average sale price of a home in Northern Virginia dropped from the previous year."
Somehow, I'd missed that small fact in his prior columns -- maybe because he'd never mentioned it in all the months I'd been reading MarketWatch.
By spring of this year, overall inventory in Northern Virginia had increased 442 percent from the previous year, Howell said. Houses were sitting on the market longer, and Howell had all but stopped including figures for average and median sales prices in his columns.
Clearly, the oracle was testing my faith.
Then came the June/July MarketWatch. "When demand drops and supply increases, prices fall. That's Economics 101, right?" Howell asked. "Wrong. Remarkably, 4.6% represents the increase in the average sales price from the first five months of 2005 to the first five months of 2006. . . . While 4.6% is a far cry from the 20% - 25% annual increase that we have seen in the last several years, it is nonetheless a truly remarkable number. A note of caution: This does not mean that all homes are worth more today than they were this time last year because that clearly is not the case. Some homes, based on neighborhood-level supply and demand, have fallen in value."
So, it seems that declining prices had moved from the realm of the improbable to the "clearly" obvious. If I hadn't seen it happening in my own neighborhood, I wouldn't have believed it.
The September/October MarketWatch gave the "Top Ten Reasons to Be Optimistic About Northern Virginia's Housing Market." Reason No. 1: "The softening of the market. Believe it or not, that's a good thing." (Take that, Kinsley!) Howell also noted that the market has history on its side. "The compounded average annual increase in the average sales price of a home in the metro DC area over the last 30 years is 7%. . . . We won't see that in 2006, but an individual's housing decision should be a long-term decision. Feel good about owning a home here -- unless you have to sell right now."
Fortunately, I don't have to sell right now. My wife and I can wait for those 7- to 12-percent annual increases, which I'm sure are right around the corner.
That's what we thought, anyway. But Howell's October/November column was more sober:
"Most of the major statistical indicators of the health of Northern Virginia's market are trending down, but we still believe that there is a 'soft landing' going on, not a crash. Inventory of available homes is up; the number of contracts is down; it is taking longer for properties to sell. . . . As a consequence, the average sales price of a home in Northern Virginia has actually dropped about 6% -- on average -- from this same time last year. Nonetheless, we remain confident that the market is experiencing a wholly expected and normal adjustment after several years of ultimately unsustainable price appreciation."
Hoping to rid myself of confusion, I sought wisdom from the only source who could ease my anxieties -- the oracle himself. I called Howell and asked him if, in hindsight, he had been too optimistic.
"Maybe a little," he responded. "But honest to goodness, I don't think very much. . . . Yes, my projections were probably a little on the rosy side. But there are still folks who are talking about a bubble bursting or prices really coming unglued. . . . Are prices down now compared to where they were a year ago? Absolutely. But if you look through a slightly different side of that same prism, prices today are still considerably higher than they were two years ago. . . ."
So, I found my consolation -- and I remain confident in David Howell. If you get too bogged down in numbers, you might encounter bad news. But oracles serve deeper truths. After all, Howell does this for a living.
By Jonathan V. Last
The real estate market is a complex beast, one only dimly understood by the mere mortals among us. Thank God we have real estate professionals. Unlike, say, journalists, Realtors undergo hours of rigorous training. They even have to pass a test. So they're a lot like doctors, maybe even priests.
If Realtors are indeed a priesthood, then David Howell is their oracle. After I bought my first home, a condo in Old Town Alexandria, in the spring of 2004, I began receiving a monthly newsletter from the local real estate giant McEnearney. Prominently featured in the three-page mailing is MarketWatch, a column penned by Howell, the managing broker of McEnearney's office in McLean.
Unfortunately, the pronouncements of this particular oracle, while absolute and pure, are sometimes hard to understand and, over time, even harder to reconcile.
When I first started reading Howell's column, in 2004, the real estate market was roaring. He wrote: "Ten More 'Boom' Years? The National Association of Realtors' Chief Economist David Lereah expects the current real estate boom to continue for the next decade. . . . And if you have been reading this space for any period of time, you know that we feel just as strongly about the health of this area's housing market."
In his first dispatch of the following year, Howell asked: "2004 Was Another Record Year -- Could 2005 Be Even Better?" The answer was affirmative. "Despite predictions from many this time last year that the local real estate market would begin to taper off in 2004, it was another record year for home sales in Northern Virginia. . . . Is there any way the market could improve over these staggering numbers? Yes -- with a key exception. We believe that the number of sales will increase in 2005. . . ." In nearly every column he wrote in early 2005, Howell gleefully related the market's enormous gains in sales prices. And although he would sometimes hedge his bets, writing that such runaway increases probably wouldn't last, even he didn't seem to believe it. "While some in the national press continue to talk about a housing bubble that's about to burst, we maintain that 2005 will set new records for the number of sales," he wrote in his February/March column that year. "We had also projected home price appreciation in the range of 7% - 9% for the year. . . . It turns out that, if early indications continue, we were wrong. We weren't optimistic enough! The average price of homes that settled in January 2005 climbed 21% from January 2004 sales, and the median price jumped by 26%. We know this is too early to say that this trend will continue, but we are also seeing the lowest inventory of available homes on the market at any time in at least the last 20 years."
It's hard to square disclaimers about slower appreciation with such statements. But then again, the path to wisdom is an arduous one.
One thing that wasn't hard to understand was Howell's dislike of the media. He has gone after publications from the Nation to Fortune, and he really dislikes The Washington Post. In March/April 2005, he assailed a Michael Kinsley opinion essay in The Post that argued that the housing market was due for a correction -- and that the correction would be good for the country. Howell insisted that there would be no downturn and that, regardless, there was no upside to a real estate crash. "[Y]ou and your colleagues similarly do not understand the dynamics of the residential real estate market," he thundered. "Local real estate professionals do."
By summer 2005, the number of purchase contracts was decreasing precipitously. This caused worry for some people who thought that drops in contracts were often followed by rising inventory and falling prices.
But the oracle was there to steady us. "Has the market finally topped out?" Howell asked. "No, it hasn't. In fact, in most senses the market has never been better." In the July/August 2005 MarketWatch, Howell explained that "the rate of home price appreciation appears to be moderating just a bit. We have stated for some time that the 22-25% home price appreciation that we have witnessed for the last two years is not sustainable over an extended period of time. . . . We fully expect that prices across the board will be rising between 12% and 15% by the end of the year."
By autumn of 2005, the oracle was again troubled by the unbelievers: "[I]t would appear that any number of media outlets have decided that there is money to be made in spreading baseless fear that the real estate sky is falling. . . . Is the market softening? Absolutely. Are properties taking longer to sell? Absolutely. Is there substantially more inventory on the market in Metro DC than this time last year? You betcha." Then Howell dropped the hammer:
"Is it possible that some area home prices might actually go down? Possible -- but not probable. What we are seeing is the expected return to a more normal market after two white-hot years that were anything but normal. Instead of 20-25% appreciation, expect the average price to rise 7-12% next year. . . ."
In his March/April column this year, Howell began with a quote from a local lawyer: "Real estate here will never depreciate." The quote was from 1891. Later in the column, Howell casually mentioned that "we would not go so far as to say that values can 'never depreciate.' Twice in the 1990s, the average sale price of a home in Northern Virginia dropped from the previous year."
Somehow, I'd missed that small fact in his prior columns -- maybe because he'd never mentioned it in all the months I'd been reading MarketWatch.
By spring of this year, overall inventory in Northern Virginia had increased 442 percent from the previous year, Howell said. Houses were sitting on the market longer, and Howell had all but stopped including figures for average and median sales prices in his columns.
Clearly, the oracle was testing my faith.
Then came the June/July MarketWatch. "When demand drops and supply increases, prices fall. That's Economics 101, right?" Howell asked. "Wrong. Remarkably, 4.6% represents the increase in the average sales price from the first five months of 2005 to the first five months of 2006. . . . While 4.6% is a far cry from the 20% - 25% annual increase that we have seen in the last several years, it is nonetheless a truly remarkable number. A note of caution: This does not mean that all homes are worth more today than they were this time last year because that clearly is not the case. Some homes, based on neighborhood-level supply and demand, have fallen in value."
So, it seems that declining prices had moved from the realm of the improbable to the "clearly" obvious. If I hadn't seen it happening in my own neighborhood, I wouldn't have believed it.
The September/October MarketWatch gave the "Top Ten Reasons to Be Optimistic About Northern Virginia's Housing Market." Reason No. 1: "The softening of the market. Believe it or not, that's a good thing." (Take that, Kinsley!) Howell also noted that the market has history on its side. "The compounded average annual increase in the average sales price of a home in the metro DC area over the last 30 years is 7%. . . . We won't see that in 2006, but an individual's housing decision should be a long-term decision. Feel good about owning a home here -- unless you have to sell right now."
Fortunately, I don't have to sell right now. My wife and I can wait for those 7- to 12-percent annual increases, which I'm sure are right around the corner.
That's what we thought, anyway. But Howell's October/November column was more sober:
"Most of the major statistical indicators of the health of Northern Virginia's market are trending down, but we still believe that there is a 'soft landing' going on, not a crash. Inventory of available homes is up; the number of contracts is down; it is taking longer for properties to sell. . . . As a consequence, the average sales price of a home in Northern Virginia has actually dropped about 6% -- on average -- from this same time last year. Nonetheless, we remain confident that the market is experiencing a wholly expected and normal adjustment after several years of ultimately unsustainable price appreciation."
Hoping to rid myself of confusion, I sought wisdom from the only source who could ease my anxieties -- the oracle himself. I called Howell and asked him if, in hindsight, he had been too optimistic.
"Maybe a little," he responded. "But honest to goodness, I don't think very much. . . . Yes, my projections were probably a little on the rosy side. But there are still folks who are talking about a bubble bursting or prices really coming unglued. . . . Are prices down now compared to where they were a year ago? Absolutely. But if you look through a slightly different side of that same prism, prices today are still considerably higher than they were two years ago. . . ."
So, I found my consolation -- and I remain confident in David Howell. If you get too bogged down in numbers, you might encounter bad news. But oracles serve deeper truths. After all, Howell does this for a living.
20 November 2006
The Ifs, Ands or Buts:
Contingencies Muscle Back Into Contracts
Washington Post, November 18, 2006
By Dan Rafter
The price was solid, but otherwise the offer that real estate agent Jane Fairweather's clients received for their house last month was far from a good one.
The would-be buyers are also trying to sell their house, and they didn't want to purchase a second residence -- or carry two mortgage payments -- until they found a buyer. So the offer had a catch: Closing wouldn't take place until Feb. 14.
Making the sellers wait four months to close was bad enough. But the real deal-breaker, according to Fairweather: If the buyers didn't sell their house by Feb. 14, the offer would simply disappear, leaving her clients with a home they still needed to sell.
"Here they wanted to string my seller out for basically four months, and then there'd be no guarantee that come February there would even be a closing," said Fairweather, an agent with the Bethesda office of Coldwell Banker Residential Brokerage. "What they were telling the sellers was that they didn't want any risk in this deal. They were going to put their home on the market. If it didn't sell, they weren't going to lose anything. They wanted to shift all the risk from themselves to the sellers."
Offers to purchase homes can include all sorts of requirements for things that must happen for the deal to go through, known as contingency clauses. Many contracts make the deal contingent on, for instance, a satisfactory home inspection or the ability to obtain financing. For sellers, the most troublesome is the home-sale contingency, in which the purchase depends on the buyers in turn finding buyers for their own home.
Such clauses were rare during the real estate boom of recent years. However, as the market has slowed, they have begun to reappear.
Nothing about such a clause prevents a seller from accepting a better offer should one come along. The sellers merely have to give the first buyers the chance to sweeten their offer, perhaps by lifting the contingency, shortening it or raising the price they are willing to pay.
Even with this flexibility, many real estate agents who represent sellers consider such offers last resorts. That's because many buyers who might otherwise be interested in a home will ignore those that have outstanding contingent offers. They would rather not get into a bidding war.
Offers contingent on home sales, then, would seem a good deal for buyers and awful for sellers. But agents and sellers can work together to make contingent offers more attractive.
"Now that the market has slowed, some home buyers are finding that a home seller might accept an offer with a home-sale contingency," said Holly Worthington, managing broker and vice president of the Chevy Chase and Woodley Park offices of Long & Foster Real Estate. "But to convince a seller to take their home off the market, the buyer's agent must make a compelling case."
That compelling case is the key to home-sale contingency offers that work. For instance, Fairweather said that after her home-seller clients received that contingent offer last month, she went back to the buyers and their real estate agent to hammer out a better deal.
First, Fairweather requested that the buyers provide proof that a reputable lender would provide them with a bridge loan -- which would give the buyers cash to make a down payment on the sellers' home -- should the buyers fail to sell their house by Feb. 14. Second, the offer was amended to state that even if the buyers didn't sell their home by that date, the closing would still happen.
This gave something to everyone. The buyers would still have nearly four months to sell their current home. The sellers would be assured that they would close in February.
"If you are making a contingent offer, you need to convince the seller that you are highly motivated to sell your [current] house," Fairweather said. "We needed to see that."
Marc Fleisher, a real estate agent with the Friendship Heights office of Long & Foster, takes a similar approach. When one of Fleisher's sellers receives a contingent offer, the agent goes to work, taking a close look at the price the buyers are asking for their own home. If that price doesn't seem reasonable, Fleisher asks the buyers to lower it. If the buyers refuse? Fleisher advises his client to walk away from the offer.
"There are certain stipulations that you need to put with a contingent offer," he said. "In any home-sale contingency being considered, we put in language stating that the home must not be priced to exceed a certain level. I'll take a look at the property personally before making any recommendations to my sellers."
Fairweather, too, examines a buyer's asking price before advising her sellers to consider an offer with a home-sale contingency. A compromise might state that the sellers will consider the contingent offer for 30 days while the buyers try to sell their existing home at the original price. If the buyers do not receive an offer during those first 30 days, they then must make a specified reduction in the asking price. If in two more weeks there is still no offer, then the buyers are required to cut the price again.
Buyers who agree to such stipulations prove that they are motivated, Fairweather said.
"The seller controls his own house and the price he puts on it, how well it shows, how easy it is for agents to get in. When he accepts a contingent offer, he has now tied his life to another property where he doesn't control the price, the condition it shows in, the access to it and how easy it is for agents to show it," Fairweather said. "He doesn't control any of the marketing or the quality of the agent the buyer is working with. That's why you need to offer the seller protection when dealing with contingent offers."
Some agents still advise their sellers to avoid contingent offers if at all possible. Melinda Estridge, an agent with Long & Foster's Bethesda office, is one.
"The simple fact is, if someone buys a property with a contingency, that person is almost always less motivated to sell a home," Estridge said. "For them, if it doesn't work out they can stay where they are and re-evaluate. If they receive less money for their property than they expected, they can try to renegotiate with the seller, who is now in a more precarious situation. I always tell my sellers that if they take a contingent offer, there is only a 50/50 chance of it working out."
Estridge also coaches buyers to avoid the situation in which they must make contingent offers. She instead recommends that they put their home on the market, get it under contract and negotiate a long-term or flexible closing date, one that gives them enough time to search comfortably for their next home.
David Rainey, a real estate agent with the Mount Vernon office of Weichert Realtors, agrees that non-contingent offers are best for sellers. That doesn't mean, though, that contingent offers should automatically be dismissed.
The key to working out a good deal is to approach the sale as a business decision, not an emotional one, he said.
"The home always has emotional connotations," Rainey said. "Trying to move sellers away from these emotions is not always an easy thing to do. It can be difficult for Realtors to sometimes rein in one or the other parties to make it a purely business decision."
Buyers can go a long way toward doing this by making professional offers, Fairweather said. They and their agents should create presentations that analyze their real estate market, showing the selling prices similar homes have fetched. This way, the buyers can show the sellers at least some evidence that they have set a reasonable asking price for their home.
Making a contingent offer that will be considered seriously also means offering the right price. A contingent offer is already flawed in the minds of most sellers. Buyers who place a home-sale contingency in their offer and request a sales price far lower than asking price may risk scuttling a deal before negotiations start.
"If you are going to offer a price that is low, you need to be more careful about the kind of contingencies you are putting into the contract," said Richard DuBeshter, an agent with Long & Foster in the District.
"If you put too many contingencies in there, you need to make an attractive offer closer to asking price."
Sellers, especially when presented with a well-prepared offer, should then look hard at their own property to determine whether a contingent offer might be the best they can expect, Fairweather said. Sellers whose homes back up to major highways, sit on busy roads or are the ugliest in a neighborhood may want to strongly consider that offer, she said.
"The last six or seven years, we didn't see any contingent offers," Fairweather said.
"We'd never let a buyer even think about making one. Now buyers are not only thinking about them, they're actually doing it."
Washington Post, November 18, 2006
By Dan Rafter
The price was solid, but otherwise the offer that real estate agent Jane Fairweather's clients received for their house last month was far from a good one.
The would-be buyers are also trying to sell their house, and they didn't want to purchase a second residence -- or carry two mortgage payments -- until they found a buyer. So the offer had a catch: Closing wouldn't take place until Feb. 14.
Making the sellers wait four months to close was bad enough. But the real deal-breaker, according to Fairweather: If the buyers didn't sell their house by Feb. 14, the offer would simply disappear, leaving her clients with a home they still needed to sell.
"Here they wanted to string my seller out for basically four months, and then there'd be no guarantee that come February there would even be a closing," said Fairweather, an agent with the Bethesda office of Coldwell Banker Residential Brokerage. "What they were telling the sellers was that they didn't want any risk in this deal. They were going to put their home on the market. If it didn't sell, they weren't going to lose anything. They wanted to shift all the risk from themselves to the sellers."
Offers to purchase homes can include all sorts of requirements for things that must happen for the deal to go through, known as contingency clauses. Many contracts make the deal contingent on, for instance, a satisfactory home inspection or the ability to obtain financing. For sellers, the most troublesome is the home-sale contingency, in which the purchase depends on the buyers in turn finding buyers for their own home.
Such clauses were rare during the real estate boom of recent years. However, as the market has slowed, they have begun to reappear.
Nothing about such a clause prevents a seller from accepting a better offer should one come along. The sellers merely have to give the first buyers the chance to sweeten their offer, perhaps by lifting the contingency, shortening it or raising the price they are willing to pay.
Even with this flexibility, many real estate agents who represent sellers consider such offers last resorts. That's because many buyers who might otherwise be interested in a home will ignore those that have outstanding contingent offers. They would rather not get into a bidding war.
Offers contingent on home sales, then, would seem a good deal for buyers and awful for sellers. But agents and sellers can work together to make contingent offers more attractive.
"Now that the market has slowed, some home buyers are finding that a home seller might accept an offer with a home-sale contingency," said Holly Worthington, managing broker and vice president of the Chevy Chase and Woodley Park offices of Long & Foster Real Estate. "But to convince a seller to take their home off the market, the buyer's agent must make a compelling case."
That compelling case is the key to home-sale contingency offers that work. For instance, Fairweather said that after her home-seller clients received that contingent offer last month, she went back to the buyers and their real estate agent to hammer out a better deal.
First, Fairweather requested that the buyers provide proof that a reputable lender would provide them with a bridge loan -- which would give the buyers cash to make a down payment on the sellers' home -- should the buyers fail to sell their house by Feb. 14. Second, the offer was amended to state that even if the buyers didn't sell their home by that date, the closing would still happen.
This gave something to everyone. The buyers would still have nearly four months to sell their current home. The sellers would be assured that they would close in February.
"If you are making a contingent offer, you need to convince the seller that you are highly motivated to sell your [current] house," Fairweather said. "We needed to see that."
Marc Fleisher, a real estate agent with the Friendship Heights office of Long & Foster, takes a similar approach. When one of Fleisher's sellers receives a contingent offer, the agent goes to work, taking a close look at the price the buyers are asking for their own home. If that price doesn't seem reasonable, Fleisher asks the buyers to lower it. If the buyers refuse? Fleisher advises his client to walk away from the offer.
"There are certain stipulations that you need to put with a contingent offer," he said. "In any home-sale contingency being considered, we put in language stating that the home must not be priced to exceed a certain level. I'll take a look at the property personally before making any recommendations to my sellers."
Fairweather, too, examines a buyer's asking price before advising her sellers to consider an offer with a home-sale contingency. A compromise might state that the sellers will consider the contingent offer for 30 days while the buyers try to sell their existing home at the original price. If the buyers do not receive an offer during those first 30 days, they then must make a specified reduction in the asking price. If in two more weeks there is still no offer, then the buyers are required to cut the price again.
Buyers who agree to such stipulations prove that they are motivated, Fairweather said.
"The seller controls his own house and the price he puts on it, how well it shows, how easy it is for agents to get in. When he accepts a contingent offer, he has now tied his life to another property where he doesn't control the price, the condition it shows in, the access to it and how easy it is for agents to show it," Fairweather said. "He doesn't control any of the marketing or the quality of the agent the buyer is working with. That's why you need to offer the seller protection when dealing with contingent offers."
Some agents still advise their sellers to avoid contingent offers if at all possible. Melinda Estridge, an agent with Long & Foster's Bethesda office, is one.
"The simple fact is, if someone buys a property with a contingency, that person is almost always less motivated to sell a home," Estridge said. "For them, if it doesn't work out they can stay where they are and re-evaluate. If they receive less money for their property than they expected, they can try to renegotiate with the seller, who is now in a more precarious situation. I always tell my sellers that if they take a contingent offer, there is only a 50/50 chance of it working out."
Estridge also coaches buyers to avoid the situation in which they must make contingent offers. She instead recommends that they put their home on the market, get it under contract and negotiate a long-term or flexible closing date, one that gives them enough time to search comfortably for their next home.
David Rainey, a real estate agent with the Mount Vernon office of Weichert Realtors, agrees that non-contingent offers are best for sellers. That doesn't mean, though, that contingent offers should automatically be dismissed.
The key to working out a good deal is to approach the sale as a business decision, not an emotional one, he said.
"The home always has emotional connotations," Rainey said. "Trying to move sellers away from these emotions is not always an easy thing to do. It can be difficult for Realtors to sometimes rein in one or the other parties to make it a purely business decision."
Buyers can go a long way toward doing this by making professional offers, Fairweather said. They and their agents should create presentations that analyze their real estate market, showing the selling prices similar homes have fetched. This way, the buyers can show the sellers at least some evidence that they have set a reasonable asking price for their home.
Making a contingent offer that will be considered seriously also means offering the right price. A contingent offer is already flawed in the minds of most sellers. Buyers who place a home-sale contingency in their offer and request a sales price far lower than asking price may risk scuttling a deal before negotiations start.
"If you are going to offer a price that is low, you need to be more careful about the kind of contingencies you are putting into the contract," said Richard DuBeshter, an agent with Long & Foster in the District.
"If you put too many contingencies in there, you need to make an attractive offer closer to asking price."
Sellers, especially when presented with a well-prepared offer, should then look hard at their own property to determine whether a contingent offer might be the best they can expect, Fairweather said. Sellers whose homes back up to major highways, sit on busy roads or are the ugliest in a neighborhood may want to strongly consider that offer, she said.
"The last six or seven years, we didn't see any contingent offers," Fairweather said.
"We'd never let a buyer even think about making one. Now buyers are not only thinking about them, they're actually doing it."
Holding On To Deal Newest Seller Problem
Washington Times, November 17, 2006
By M. Anthony Carr
Word on the street has it that while the market has slowed across the country, the most tedious task for agents these days is keeping the deal together once the buyer and seller have agreed to an offer.
During the not-so-distant seller's market, if a buyer fell out of the transaction, no sellers worried. They would simply keep some or all of the buyer's deposit funds, release the contract, take the next buyer in line and most likely get thousands of dollars more for the property now that it had aged on the market a few weeks longer.
Buyers now can do their own switching in place on the transaction to their benefit. Even with a contract in place, there's nothing stopping them from looking around for yet another house and, if they see something they like, using one of several contract clauses to get out of the contract and into another house -- and if it has seasoned long enough, for less money.
While we would all like to think that once everyone has signed a contract that it's binding from the point of the signing, in real estate, such is not the case. Once you sign your name to the contract, there may be several points in the contract that allow one or both of the parties to get out of the agreement.
As you're looking over the contract, note several paragraphs that should be in your agreement and make sure they get performed to protect yourself from a deal falling through the cracks.
One of those clauses is the financing contingency. You want to be sure that the buyer can actually perform on this one and the sooner the better. Look over the various aspects of this contingency -- the deadline of when they are to apply, what kind of financing, interest rates and principal amounts.
There are various reasons why this contingency could damage the closing. Can the buyer qualify for the type of mortgage involved in the sale? Have they put down a certain mortgage interest rate or "market rate"?
A problem may arise if the rates change from the time the contract was written to the time the loan application is made.
If rates head upward, this could drop them out of qualifying for the loan amount. Of course, it would be best if the buyer would have applied for the mortgage before he's even signed the contract.
Right behind this contingency is the appraisal. Make sure, as the seller, that you allow enough time for this appraisal to get done and then for the underwriting to approve the appraisal. Depending on your market area, 30 days should cover it.
Sometimes buyers are surprised when they get an appraisal listed on the property substantiating the offer price, but then have the appraisal thrown out by the underwriters.
This contingency can get pretty sticky for both the buyer and seller if home values are slipping. First of all, if the appraisal comes in less than the contract amount, someone has to make a new agreement on price or come up with more money.
For instance, if the contract is for $400,000, but the appraisal comes in at $385,000, there's an instant shortfall in value of $15,000, and that could have several ramifications.
For one, the seller may be planning on that $15,000 to help the buyer with closing costs or to use it to purchase his next house. Meanwhile, the bank originally agreed to finance 80 percent of a property worth $400,000 -- which would be $320,000.
Now the 80 percent loan-to-value will only allow a mortgage up to $308,000. Who's going to come up with the additional $12,000?
Well, in a buyer's market, this puts the seller over the barrel a lot more than the buyer. In essence, the buyer may need to be willing to cut the offer price by $15,000 and take the loss.
In addition, if the buyer still needs the closing costs, the seller may have to keep that money on the table to get the deal through.
Once the contract has been written, your real estate professional should be on top of the performance of the contract to ensure all points from contract to settlement are followed through and completed.
By M. Anthony Carr
Word on the street has it that while the market has slowed across the country, the most tedious task for agents these days is keeping the deal together once the buyer and seller have agreed to an offer.
During the not-so-distant seller's market, if a buyer fell out of the transaction, no sellers worried. They would simply keep some or all of the buyer's deposit funds, release the contract, take the next buyer in line and most likely get thousands of dollars more for the property now that it had aged on the market a few weeks longer.
Buyers now can do their own switching in place on the transaction to their benefit. Even with a contract in place, there's nothing stopping them from looking around for yet another house and, if they see something they like, using one of several contract clauses to get out of the contract and into another house -- and if it has seasoned long enough, for less money.
While we would all like to think that once everyone has signed a contract that it's binding from the point of the signing, in real estate, such is not the case. Once you sign your name to the contract, there may be several points in the contract that allow one or both of the parties to get out of the agreement.
As you're looking over the contract, note several paragraphs that should be in your agreement and make sure they get performed to protect yourself from a deal falling through the cracks.
One of those clauses is the financing contingency. You want to be sure that the buyer can actually perform on this one and the sooner the better. Look over the various aspects of this contingency -- the deadline of when they are to apply, what kind of financing, interest rates and principal amounts.
There are various reasons why this contingency could damage the closing. Can the buyer qualify for the type of mortgage involved in the sale? Have they put down a certain mortgage interest rate or "market rate"?
A problem may arise if the rates change from the time the contract was written to the time the loan application is made.
If rates head upward, this could drop them out of qualifying for the loan amount. Of course, it would be best if the buyer would have applied for the mortgage before he's even signed the contract.
Right behind this contingency is the appraisal. Make sure, as the seller, that you allow enough time for this appraisal to get done and then for the underwriting to approve the appraisal. Depending on your market area, 30 days should cover it.
Sometimes buyers are surprised when they get an appraisal listed on the property substantiating the offer price, but then have the appraisal thrown out by the underwriters.
This contingency can get pretty sticky for both the buyer and seller if home values are slipping. First of all, if the appraisal comes in less than the contract amount, someone has to make a new agreement on price or come up with more money.
For instance, if the contract is for $400,000, but the appraisal comes in at $385,000, there's an instant shortfall in value of $15,000, and that could have several ramifications.
For one, the seller may be planning on that $15,000 to help the buyer with closing costs or to use it to purchase his next house. Meanwhile, the bank originally agreed to finance 80 percent of a property worth $400,000 -- which would be $320,000.
Now the 80 percent loan-to-value will only allow a mortgage up to $308,000. Who's going to come up with the additional $12,000?
Well, in a buyer's market, this puts the seller over the barrel a lot more than the buyer. In essence, the buyer may need to be willing to cut the offer price by $15,000 and take the loss.
In addition, if the buyer still needs the closing costs, the seller may have to keep that money on the table to get the deal through.
Once the contract has been written, your real estate professional should be on top of the performance of the contract to ensure all points from contract to settlement are followed through and completed.
Nontraditional Loans Can Carry Big Risks
Washington Times,November 17, 2006
By Rebecca Boreczky
Record numbers of people have taken out nontraditional mortgages, loans with lower initial payments or other options designed to help buyers with limited resources overcome skyrocketing home prices. But these loans -- which in some cases are considered predatory by consumer advocates -- come with higher risks. Not only are these risks to the individual buyer, these alternative loans have not been tested in a time of economic hardship, so their larger effect on the economy is unknown.
Comprising less than 1 percent of the loan market in 2000, some estimate that as many as a third of all mortgages currently are nontraditional loans, Allen J. Fishbein, director of housing and credit policy for the Consumer Federation of America, testified before the Senate Banking, Housing, and Urban Affairs subcommittee on economic policy in September.
Additionally, although industry experts say there is likely a correlation between high-risk mortgages and foreclosures, "statistics on how many homes foreclose because of high-risk mortgages is hard to track," says Fannie Mae Foundation Director of Public Affairs Albert King.
Mr. Fishbein told the Senate subcommittee that 2006 delinquencies on adjustable rate mortgage loans increased 141 percent over delinquencies in 2005. Some estimate that subprime borrowers are 25 percent more likely to default on their mortgage, he says.
Still, lenders are filling what they perceive as a need in the marketplace.
"Three out of five of my clients will be interested in a more 'risky' type mortgage," says John Womeldorf, Realtor with Liz Moore & Associates in Williamsburg.
Mr. Womeldorf says it's usually the first-time home buyers who look for the loan that allows them the least out-of-pocket cash and the lowest possible monthly payment.
Home buyers have several costs involved in their mortgages. A mortgage payment includes principal and interest and also includes taxes and insurance. It is sometimes referred to as the PITI. For our purposes, we'll be discussing the principal -- the amount borrowed -- and the interest, the amount the lender charges for the loan.
How a homeowner repays the loan with interest is what determines the true cost of a home.
Home buyers have many creative ways to finance a home, rather than the so-called traditional 30-year mortgage. Here are four options, from the "safest" to the "riskiest."
• A 40-year, fixed-rate mortgage reduces the monthly payment by about $100. The trade-off is that it is slower to earn equity.
• Another choice is an interest-only loan, where consumers can pay nothing toward principal for a period of time. Typically, these loans work like an adjustable rate mortgage (ARM) with a three- to 10-year term that ends with a balloon payment.
For example, when the 10-year interest-only feature ends on the 30-year loan, the entire principal has to be paid over the final 20 years. This can cause the monthly payment to jump by as much as 50 percent.
• A low-documentation loan available for self-employed home buyers relies only on the word of the consumer as to annual income. The home buyer is asked to sign an income declaration form and complete a loan application.
• Finally, there is a loan that economists consider to be the riskiest, the option-ARM, a loan where the buyer has the option to pay only a portion of the interest monthly. The balance of the monthly interest charge is rolled back into the loan, increasing the principal.
Interest rates on option-ARMs generally start between 9 percent and 10 percent. If homeowners cannot refinance before the introductory rate expires, they could find themselves paying up to 15 percent interest.
"I consider the payment-option ARMs to be the riskiest loans available," Mr. Womeldorf says. "If the loan is not used properly, the buyer may accrue negative amortization over time, which will eventually chew up a lot of equity in the home."
Mr. Womeldorf says he believes that many home buyers lack an understanding of how the loan works.
"If a home buyer has an option-ARM loan and sees their interest rate go up two points within two years, they could see their mortgage payment up by 30 percent," he says.
Gary Herman, president of Consolidated Credit Counseling Services.com, counsels people who fall victim to overwhelming debt because of risky mortgages.
"The initial rate these mortgage lenders quote is almost always a teaser," Mr. Herman says. "It's never spelled out for the borrower what the final payment 'could' be if the interest rate keeps rising."
Mr. Herman says many people don't know what it will cost them over the life of the loan.
The majority of Mr. Herman's clients have credit card debt and a second mortgage.
"A client asked me to talk to a financial service for them about what their final payment could be and what they would actually pay for the loan," Mr. Herman says. "I called them up and asked them for the bottom line and to fax me the paperwork. The guy laughed at me and said that if they knew that they wouldn't take the loan."
The upside? ARMs give consumers with credit problems and no savings a way to finance housing.
But there are other choices.
Mr. King says Fannie Mae offers a 40-year fixed mortgage.
"A 40-year fixed mortgage helps consumers avoid some of that term-interest payment," Mr. King says. "It helps make the monthly payments more affordable."
Gary and Linda Baines took out a 40-year mortgage on their $350,000 home in Greenbelt earlier this year.
"The 40-year mortgage will help us pay down our debts and still have enough to pay the mortgage," Mr. Baines says.
"We have two small children, and there are always unexpected expenses. This gives us room to breathe," Mrs. Baines says.
Only about 5 percent of prime bank lenders offer risky mortgages. About 65 percent of so-called subprime financial services offer high-risk mortgages.
Financial industry insiders say consumers often are unaware of the difference. Prime lender interest rates are regulated by the federal government and subprime financial services interest rates are not.
The 109th Congress, currently in its lame-duck session, has considered, but has not passed, several measures to combat so-called predatory lending practices, including H.R. 1182, the Miller-Watt-Frank bill; H.R. 1295, the Ney-Kanjorski bill; and H.R. 4471, the Uniform National Mortgage Lending Standards Act introduced by U.S. Rep. William Lacy Clay, a Missouri Democrat.
Critics of the latter two measures say they would weaken state laws already in place regulating such loans. Industry groups, such as the Mortgage Bankers Association, the National Home Equity Mortgage Association and the National Association of Mortgage Brokers have announced they favor the Ney-Kanjorski proposal.
For details, consult the National Low Income Housing Coalition's summary
Meanwhile, federal regulators, including the Office of the Comptroller of the Currency, the Federal Reserve Board, Federal Deposit Insurance Corp. and others, last summer issued a 27-page "Interagency Guidance on Nontraditional Mortgage Product Risks"
The concern for economists is that these alternative loans have not been tested in an economic downturn, so they not only pose a risk for individual consumers, but potentially could have deeper ramifications.
Mr. Fishbein told the Senate subcommittee that consumers had relied upon what he called the "superheated housing market" to increase housing prices -- and their equity in the investment -- in order to refinance their way out of subprime loans into more traditional financing, avoiding large balloon payments. But as the market cools, this will no longer be possible, he testified.
The new financing is complicated not only for consumers, but also for real estate agents.
"We have meetings at least once a week where our preferred lenders update us on mortgage information," Mr. Womeldorf says. "We make sure our clients are educated and aware of all the options available to them and the risks associated with each."
Dave and Ellen Parker of Fredericksburg understand what it is to be "surprised" by a jump in their monthly mortgage payments.
"When we bought our home six years ago for $400,000, we never planned to stay more than five years," Mr. Parker says.
"Our payments were $1,050 a month," he says. "Then the ARM ended and our payment shot up to over $1,500. Now we are facing foreclosure."
Mrs. Parker says she can't believe what's happened.
"Our dreams of owning our own home weren't supposed to end like this," she says. "They never told us how high our mortgage payments could get. Now we are in credit counseling and are trying to hold on to our dream."
By Rebecca Boreczky
Record numbers of people have taken out nontraditional mortgages, loans with lower initial payments or other options designed to help buyers with limited resources overcome skyrocketing home prices. But these loans -- which in some cases are considered predatory by consumer advocates -- come with higher risks. Not only are these risks to the individual buyer, these alternative loans have not been tested in a time of economic hardship, so their larger effect on the economy is unknown.
Comprising less than 1 percent of the loan market in 2000, some estimate that as many as a third of all mortgages currently are nontraditional loans, Allen J. Fishbein, director of housing and credit policy for the Consumer Federation of America, testified before the Senate Banking, Housing, and Urban Affairs subcommittee on economic policy in September.
Additionally, although industry experts say there is likely a correlation between high-risk mortgages and foreclosures, "statistics on how many homes foreclose because of high-risk mortgages is hard to track," says Fannie Mae Foundation Director of Public Affairs Albert King.
Mr. Fishbein told the Senate subcommittee that 2006 delinquencies on adjustable rate mortgage loans increased 141 percent over delinquencies in 2005. Some estimate that subprime borrowers are 25 percent more likely to default on their mortgage, he says.
Still, lenders are filling what they perceive as a need in the marketplace.
"Three out of five of my clients will be interested in a more 'risky' type mortgage," says John Womeldorf, Realtor with Liz Moore & Associates in Williamsburg.
Mr. Womeldorf says it's usually the first-time home buyers who look for the loan that allows them the least out-of-pocket cash and the lowest possible monthly payment.
Home buyers have several costs involved in their mortgages. A mortgage payment includes principal and interest and also includes taxes and insurance. It is sometimes referred to as the PITI. For our purposes, we'll be discussing the principal -- the amount borrowed -- and the interest, the amount the lender charges for the loan.
How a homeowner repays the loan with interest is what determines the true cost of a home.
Home buyers have many creative ways to finance a home, rather than the so-called traditional 30-year mortgage. Here are four options, from the "safest" to the "riskiest."
• A 40-year, fixed-rate mortgage reduces the monthly payment by about $100. The trade-off is that it is slower to earn equity.
• Another choice is an interest-only loan, where consumers can pay nothing toward principal for a period of time. Typically, these loans work like an adjustable rate mortgage (ARM) with a three- to 10-year term that ends with a balloon payment.
For example, when the 10-year interest-only feature ends on the 30-year loan, the entire principal has to be paid over the final 20 years. This can cause the monthly payment to jump by as much as 50 percent.
• A low-documentation loan available for self-employed home buyers relies only on the word of the consumer as to annual income. The home buyer is asked to sign an income declaration form and complete a loan application.
• Finally, there is a loan that economists consider to be the riskiest, the option-ARM, a loan where the buyer has the option to pay only a portion of the interest monthly. The balance of the monthly interest charge is rolled back into the loan, increasing the principal.
Interest rates on option-ARMs generally start between 9 percent and 10 percent. If homeowners cannot refinance before the introductory rate expires, they could find themselves paying up to 15 percent interest.
"I consider the payment-option ARMs to be the riskiest loans available," Mr. Womeldorf says. "If the loan is not used properly, the buyer may accrue negative amortization over time, which will eventually chew up a lot of equity in the home."
Mr. Womeldorf says he believes that many home buyers lack an understanding of how the loan works.
"If a home buyer has an option-ARM loan and sees their interest rate go up two points within two years, they could see their mortgage payment up by 30 percent," he says.
Gary Herman, president of Consolidated Credit Counseling Services.com, counsels people who fall victim to overwhelming debt because of risky mortgages.
"The initial rate these mortgage lenders quote is almost always a teaser," Mr. Herman says. "It's never spelled out for the borrower what the final payment 'could' be if the interest rate keeps rising."
Mr. Herman says many people don't know what it will cost them over the life of the loan.
The majority of Mr. Herman's clients have credit card debt and a second mortgage.
"A client asked me to talk to a financial service for them about what their final payment could be and what they would actually pay for the loan," Mr. Herman says. "I called them up and asked them for the bottom line and to fax me the paperwork. The guy laughed at me and said that if they knew that they wouldn't take the loan."
The upside? ARMs give consumers with credit problems and no savings a way to finance housing.
But there are other choices.
Mr. King says Fannie Mae offers a 40-year fixed mortgage.
"A 40-year fixed mortgage helps consumers avoid some of that term-interest payment," Mr. King says. "It helps make the monthly payments more affordable."
Gary and Linda Baines took out a 40-year mortgage on their $350,000 home in Greenbelt earlier this year.
"The 40-year mortgage will help us pay down our debts and still have enough to pay the mortgage," Mr. Baines says.
"We have two small children, and there are always unexpected expenses. This gives us room to breathe," Mrs. Baines says.
Only about 5 percent of prime bank lenders offer risky mortgages. About 65 percent of so-called subprime financial services offer high-risk mortgages.
Financial industry insiders say consumers often are unaware of the difference. Prime lender interest rates are regulated by the federal government and subprime financial services interest rates are not.
The 109th Congress, currently in its lame-duck session, has considered, but has not passed, several measures to combat so-called predatory lending practices, including H.R. 1182, the Miller-Watt-Frank bill; H.R. 1295, the Ney-Kanjorski bill; and H.R. 4471, the Uniform National Mortgage Lending Standards Act introduced by U.S. Rep. William Lacy Clay, a Missouri Democrat.
Critics of the latter two measures say they would weaken state laws already in place regulating such loans. Industry groups, such as the Mortgage Bankers Association, the National Home Equity Mortgage Association and the National Association of Mortgage Brokers have announced they favor the Ney-Kanjorski proposal.
For details, consult the National Low Income Housing Coalition's summary
Meanwhile, federal regulators, including the Office of the Comptroller of the Currency, the Federal Reserve Board, Federal Deposit Insurance Corp. and others, last summer issued a 27-page "Interagency Guidance on Nontraditional Mortgage Product Risks"
The concern for economists is that these alternative loans have not been tested in an economic downturn, so they not only pose a risk for individual consumers, but potentially could have deeper ramifications.
Mr. Fishbein told the Senate subcommittee that consumers had relied upon what he called the "superheated housing market" to increase housing prices -- and their equity in the investment -- in order to refinance their way out of subprime loans into more traditional financing, avoiding large balloon payments. But as the market cools, this will no longer be possible, he testified.
The new financing is complicated not only for consumers, but also for real estate agents.
"We have meetings at least once a week where our preferred lenders update us on mortgage information," Mr. Womeldorf says. "We make sure our clients are educated and aware of all the options available to them and the risks associated with each."
Dave and Ellen Parker of Fredericksburg understand what it is to be "surprised" by a jump in their monthly mortgage payments.
"When we bought our home six years ago for $400,000, we never planned to stay more than five years," Mr. Parker says.
"Our payments were $1,050 a month," he says. "Then the ARM ended and our payment shot up to over $1,500. Now we are facing foreclosure."
Mrs. Parker says she can't believe what's happened.
"Our dreams of owning our own home weren't supposed to end like this," she says. "They never told us how high our mortgage payments could get. Now we are in credit counseling and are trying to hold on to our dream."
Technology Gains Ground In Home Transactions
Survey: Most home sellers choose full-service brokerage
Inman News, November 16, 2006
Technology is dominating many aspects of the real estate transaction process, but the most important factors are purely human, according to an industry survey of home buyers and sellers.
Most sellers prefer full-service brokerage, where brokers handle all aspects of the transaction process from listing to closing, according the survey, which found that 83 percent of sellers use full-service brokerage, 9 percent use limited services and 8 percent use minimal service, such as simply listing a property on a MLS.
The study, released by the National Association of Realtors, was based on a mailed questionnaire and asked buyers and sellers about preferences and habits in real estate transactions.
NAR 2006 President Thomas M. Stevens from Vienna, Va., said historic comparisons are not available, but that limited and minimal services were a relatively small market share in the past and the question was not part of previous surveys. "Anecdotally, there’s been a modest rise in recent years, and in all probability a somewhat higher level of sellers used full-service brokerage through the early part of this decade," said Stevens, senior vice president of NRT Inc.
"Our sense is that professionals will continue to experiment with business models and that the lion’s share of consumers will continue to opt for full-service brokerage, but there’s room for all ethical business practices in this industry," he said.
Additional findings show consumer satisfaction with the level of brokerage service varies, with 71 percent of sellers being very satisfied with their full-service experience and another 24 percent somewhat satisfied. Limited services also received high marks with 76 percent being generally satisfied; however, 50 percent of sellers using minimal service were dissatisfied with their experience.
The survey also found a downtrend in the number of for-sale-by-owner transactions, falling from 13 percent of market share in 2005 to 12 percent today. "When you factor out the properties that were not placed on the open market, the actual number of FSBOs is only 7 percent - the rest are simply unrepresented sellers in private transactions," Stevens said. NAR began tracking the FSBO market in 1981; the record high was 20 percent in 1987.
The median home price for sellers who use an agent is 31.9 percent higher than a home sold directly by an owner; $247,000 versus $187,200, according to the NAR survey. However, unassisted sellers in this survey, unlike agent-assisted sellers, were more likely to be in a small town or rural area, and their income was 7.2 percent lower than sellers using agents - suggesting their homes may be worth less than the typical home sold by an agent.
The most difficult tasks reported by FSBOs are preparing the home for sale, understanding and performing the paperwork, and selling within the desired time frame.
To find a real estate agent, the survey shows the most important factor for both buyers and sellers is word-of-mouth recommendation. The most important criteria in choosing an agent are reputation and trustworthiness.
The typical home buyer is 41 years old, earned $71,800 and purchased a home costing $214,000 that was 1,815 square feet in size, according to the survey. They searched eight weeks and visited nine homes before making a decision.
Sixty-one percent of buyers are married couples, a record 22 percent are single women, 9 percent single men, 7 percent unmarried couples and 1 percent other. Eleven percent were born outside of the United States.
Three-quarters purchased a detached single-family home, 9 percent a townhouse or rowhouse, 11 percent a condo and 5 percent some other kind of housing; 78 percent of respondents purchased an existing home and 22 percent a new home. The median distance from the previous residence was 13 miles, and 55 percent of all homes purchased were located in a suburb or subdivision.
The biggest factors influencing neighborhood choice are quality of the neighborhood, convenience to job and convenience to family and friends. Other factors with high responses include neighborhood design, convenience to shopping and quality of the school district.
The number of first-time buyers dropped to 36 percent of respondents, compared with 40 percent in the previous three annual surveys. The median age of a first-time buyer is 32, a fairly consistent finding since 1981, with a median income of $58,300. They purchased a home costing $165,000 and plan to stay in that home for six years. The median downpayment by first-time buyers was 2 percent, but 45 percent purchased with no money down. Of first-time buyers who made a downpayment, 22 percent received a gift from a friend or relative, usually their parents.
The typical repeat buyer is 47 years old, earned $81,900, purchased a home costing $249,000 and plans to stay in that home for 9 years. They made a median downpayment of 16 percent, but 11 percent paid cash for their property. Of those making downpayments, 62 used the equity from their previous home.
Buyers used a wide array of resources in searching for a home: 85 percent used a real estate agent, 80 percent the Internet (up from 77 percent in 2005), 63 percent yard signs, 55 percent print or newspaper ads and 47 percent attended open houses. Smaller categories include a home book or magazine, home builders, television, billboards and relocation companies.
When asked where they first learned about the home purchased, 36 percent of buyers identified a real estate agent; 24 percent the Internet; 15 percent from yard signs; 8 percent from a friend, neighbor or relative; 8 percent home builders; 5 percent a print or newspaper ad; 3 percent directly from the seller; and 1 percent a home book or magazine.
Eighty-one percent of home buyers who used the Internet to search for a home purchased through a real estate agent, in contrast with 63 percent of non-Internet users who were more likely to purchase directly from a builder or from an owner they knew in advance of the transaction.
Local metropolitan multiple listing service (MLS) Web sites were the most popular Internet resource, used by 53 percent of buyers, followed by Realtor.com, 52 percent; real estate company sites, 41 percent; real estate agent Web sites, 40 percent; local newspaper sites, 14 percent and real estate magazine Web sites, 6 percent; other categories were smaller.
In order of priority, home buyers want agents to help find the right house, negotiate the terms of the sale, determine what comparable homes were selling for, help with price negotiations, help with paperwork, help determine how much they could afford and help with finding and arranging financing. Three-quarters of buyers use only one agent in the search process.
When asked about the benefits provided by an agent, 55 percent of buyers said agents helped them understand the process, 40 percent said their agent pointed out unnoticed features or faults with the property, 37 percent indicated the agent improved their knowledge of the area, 36 percent said agents negotiated better contract terms, 35 percent reported a shortened search process and 29 percent said their agent negotiated a better price.
Of buyers who use an agent, 64 percent choose a buyer’s representative. Eighty-five percent of all buyers said they were likely to use the agent again or recommend to others, and almost all buyers were satisfied with their agent’s honesty and integrity, with 83 percent being very satisfied.
The median age of a home seller is 46, with an income of $83,800. Seventy-two percent are married couples, had been in their home for six years and moved a median distance of 17 miles. Their home was on the market for six weeks, up from four weeks in the 2005 survey. Ninety percent of sellers were satisfied with the selling process.
Forty-four percent of sellers chose agents based on a referral by a friend, neighbor or relative, and 30 percent used their agent previously; 69 percent of sellers contacted only one agent. Reputation and trustworthiness are the most important factors in choosing an agent; 82 percent said they were likely to use the same agent again or recommend to others.
NAR mailed an eight-page questionnaire in August 2006 to a national sample of 129,500 home buyers and sellers who purchased their homes between July 2005 and June 2006, according to county records. It generated 7,548 usable responses; the response rate was 6.3 percent. All information is characteristic of the 12-month period ending in June 2006 with the exception of income data, which are for 2005.
Inman News, November 16, 2006
Technology is dominating many aspects of the real estate transaction process, but the most important factors are purely human, according to an industry survey of home buyers and sellers.
Most sellers prefer full-service brokerage, where brokers handle all aspects of the transaction process from listing to closing, according the survey, which found that 83 percent of sellers use full-service brokerage, 9 percent use limited services and 8 percent use minimal service, such as simply listing a property on a MLS.
The study, released by the National Association of Realtors, was based on a mailed questionnaire and asked buyers and sellers about preferences and habits in real estate transactions.
NAR 2006 President Thomas M. Stevens from Vienna, Va., said historic comparisons are not available, but that limited and minimal services were a relatively small market share in the past and the question was not part of previous surveys. "Anecdotally, there’s been a modest rise in recent years, and in all probability a somewhat higher level of sellers used full-service brokerage through the early part of this decade," said Stevens, senior vice president of NRT Inc.
"Our sense is that professionals will continue to experiment with business models and that the lion’s share of consumers will continue to opt for full-service brokerage, but there’s room for all ethical business practices in this industry," he said.
Additional findings show consumer satisfaction with the level of brokerage service varies, with 71 percent of sellers being very satisfied with their full-service experience and another 24 percent somewhat satisfied. Limited services also received high marks with 76 percent being generally satisfied; however, 50 percent of sellers using minimal service were dissatisfied with their experience.
The survey also found a downtrend in the number of for-sale-by-owner transactions, falling from 13 percent of market share in 2005 to 12 percent today. "When you factor out the properties that were not placed on the open market, the actual number of FSBOs is only 7 percent - the rest are simply unrepresented sellers in private transactions," Stevens said. NAR began tracking the FSBO market in 1981; the record high was 20 percent in 1987.
The median home price for sellers who use an agent is 31.9 percent higher than a home sold directly by an owner; $247,000 versus $187,200, according to the NAR survey. However, unassisted sellers in this survey, unlike agent-assisted sellers, were more likely to be in a small town or rural area, and their income was 7.2 percent lower than sellers using agents - suggesting their homes may be worth less than the typical home sold by an agent.
The most difficult tasks reported by FSBOs are preparing the home for sale, understanding and performing the paperwork, and selling within the desired time frame.
To find a real estate agent, the survey shows the most important factor for both buyers and sellers is word-of-mouth recommendation. The most important criteria in choosing an agent are reputation and trustworthiness.
The typical home buyer is 41 years old, earned $71,800 and purchased a home costing $214,000 that was 1,815 square feet in size, according to the survey. They searched eight weeks and visited nine homes before making a decision.
Sixty-one percent of buyers are married couples, a record 22 percent are single women, 9 percent single men, 7 percent unmarried couples and 1 percent other. Eleven percent were born outside of the United States.
Three-quarters purchased a detached single-family home, 9 percent a townhouse or rowhouse, 11 percent a condo and 5 percent some other kind of housing; 78 percent of respondents purchased an existing home and 22 percent a new home. The median distance from the previous residence was 13 miles, and 55 percent of all homes purchased were located in a suburb or subdivision.
The biggest factors influencing neighborhood choice are quality of the neighborhood, convenience to job and convenience to family and friends. Other factors with high responses include neighborhood design, convenience to shopping and quality of the school district.
The number of first-time buyers dropped to 36 percent of respondents, compared with 40 percent in the previous three annual surveys. The median age of a first-time buyer is 32, a fairly consistent finding since 1981, with a median income of $58,300. They purchased a home costing $165,000 and plan to stay in that home for six years. The median downpayment by first-time buyers was 2 percent, but 45 percent purchased with no money down. Of first-time buyers who made a downpayment, 22 percent received a gift from a friend or relative, usually their parents.
The typical repeat buyer is 47 years old, earned $81,900, purchased a home costing $249,000 and plans to stay in that home for 9 years. They made a median downpayment of 16 percent, but 11 percent paid cash for their property. Of those making downpayments, 62 used the equity from their previous home.
Buyers used a wide array of resources in searching for a home: 85 percent used a real estate agent, 80 percent the Internet (up from 77 percent in 2005), 63 percent yard signs, 55 percent print or newspaper ads and 47 percent attended open houses. Smaller categories include a home book or magazine, home builders, television, billboards and relocation companies.
When asked where they first learned about the home purchased, 36 percent of buyers identified a real estate agent; 24 percent the Internet; 15 percent from yard signs; 8 percent from a friend, neighbor or relative; 8 percent home builders; 5 percent a print or newspaper ad; 3 percent directly from the seller; and 1 percent a home book or magazine.
Eighty-one percent of home buyers who used the Internet to search for a home purchased through a real estate agent, in contrast with 63 percent of non-Internet users who were more likely to purchase directly from a builder or from an owner they knew in advance of the transaction.
Local metropolitan multiple listing service (MLS) Web sites were the most popular Internet resource, used by 53 percent of buyers, followed by Realtor.com, 52 percent; real estate company sites, 41 percent; real estate agent Web sites, 40 percent; local newspaper sites, 14 percent and real estate magazine Web sites, 6 percent; other categories were smaller.
In order of priority, home buyers want agents to help find the right house, negotiate the terms of the sale, determine what comparable homes were selling for, help with price negotiations, help with paperwork, help determine how much they could afford and help with finding and arranging financing. Three-quarters of buyers use only one agent in the search process.
When asked about the benefits provided by an agent, 55 percent of buyers said agents helped them understand the process, 40 percent said their agent pointed out unnoticed features or faults with the property, 37 percent indicated the agent improved their knowledge of the area, 36 percent said agents negotiated better contract terms, 35 percent reported a shortened search process and 29 percent said their agent negotiated a better price.
Of buyers who use an agent, 64 percent choose a buyer’s representative. Eighty-five percent of all buyers said they were likely to use the agent again or recommend to others, and almost all buyers were satisfied with their agent’s honesty and integrity, with 83 percent being very satisfied.
The median age of a home seller is 46, with an income of $83,800. Seventy-two percent are married couples, had been in their home for six years and moved a median distance of 17 miles. Their home was on the market for six weeks, up from four weeks in the 2005 survey. Ninety percent of sellers were satisfied with the selling process.
Forty-four percent of sellers chose agents based on a referral by a friend, neighbor or relative, and 30 percent used their agent previously; 69 percent of sellers contacted only one agent. Reputation and trustworthiness are the most important factors in choosing an agent; 82 percent said they were likely to use the same agent again or recommend to others.
NAR mailed an eight-page questionnaire in August 2006 to a national sample of 129,500 home buyers and sellers who purchased their homes between July 2005 and June 2006, according to county records. It generated 7,548 usable responses; the response rate was 6.3 percent. All information is characteristic of the 12-month period ending in June 2006 with the exception of income data, which are for 2005.
In a Downswing, Looking Up:
Once Locked Out by High Prices, Aspiring Buyers Now Find Reason for Hope
Washington Post, November 15, 2006
By Kirstin Downey
Kristy LaLonde, who rents an apartment in Crystal City, spent the past four years "freaking out" as home prices here climbed relentlessly. She feared she would never be able to own the kind of place she had been raised to expect.
Now, she's feeling better.
A dramatically slowed housing market has disappointed home sellers and left real estate agents waiting for the phone to ring. But it has brought relief to would-be homeowners such as LaLonde, 29, a federal policy analyst, and her fiance, Gregory Daphnis, 35, a project manager for a health insurance plan.
Not long ago, they thought the best they could afford was a condominium. Last month, though, they were delighted to find they could qualify to buy a red-brick Colonial in Wheaton -- because the seller had dropped the price from $499,000 to $435,000.
"We feel like we can begin building our life together, start a family," LaLonde said. "We can move somewhere that's not temporary, with a yard, and with a neighborhood community feeling."
The Washington area remains one of the most expensive places in the nation to buy a home. Still, over the past year, as the number of available homes for sale has climbed, prices have flattened or fallen. That has propelled some buyers toward homes that had slipped beyond their reach. It has allowed them more time to shop and afforded them a greater selection. It has also made sellers much more willing to help with such things as closing costs.
The decline in prices is most evident in the District and Northern Virginia, according to figures released last week. The median price of all types of houses and condominiums sold in the District dropped 12 percent in October from the same month a year earlier, dropping from $425,000 to $375,000, according to Metropolitan Regional Information Systems Inc., the region's multiple listing service. Prices fell 6 percent in the same period in the close-in Northern Virginia suburbs, dropping to $458,850 from $490,000, according to MRIS, and were essentially flat in Montgomery County, at about $430,000. The median is the price at which half the homes cost more and half cost less.
"The shoe is on a different foot," said Diana Whitfield, an agent with Long & Foster Real Estate in Burke. "Buyers are realizing they are more in control."
Buyers, particularly the first-timers who feared they had been priced out of homeownership, are gleeful.
Susan O'Hora, 29, an operations manager in international licensing at the Discovery Channel, felt like she was running as fast as possible but still falling behind. After graduating from the University of Richmond and moving to the Washington area in 1999, O'Hora resolutely scaled the career ladder. She has more than doubled her salary, but real estate prices moved up much more quickly. The median home price in the region was $181,600 in the second quarter of 2000 and $443,000 in the same quarter of 2006, an increase of 144 percent, according to the National Association of Realtors.
"It was kind of sad to get better, better jobs and move up in my career when the progress I was making was being so outpaced by the housing market that I thought I would never be able to get anything livable," said O'Hora, who rents a studio apartment near Dupont Circle. But the recent market shift has left her "excited and optimistic" about her prospects.
"I feel like finally I might be able to get in on this," she said. "I feel relieved."
Daniel Moshinsky, 26, a computer programmer for the Census Bureau, also watched prices climb in the five years after he graduated from college, outstripping his wage gains.
"My reaction was horror," he recalled. "I thought, 'Will I ever get a house?' I felt like I had missed the Gold Rush, that everybody was making money in real estate and that I was left out."
Moshinsky, who lives in a townhouse in Silver Spring with three roommates, still can't afford the home he would like. Now, though, he is "hopeful," he said. "I hope prices keep falling a little bit longer. So far they haven't fallen enough to be affordable."
Some people who already own homes but are looking to trade up to a more expensive house are also pleased, even if they are losing out a bit on the selling side. For Deanna Behnken, 26, part of the pleasure of her recent home-buying experience was that she felt no sense of urgency. In late 2003, when she and her husband, Corbin, bought their townhouse in Gainesville, they felt pressured to buy quickly because they feared if they delayed, the property would be snatched up by someone else.
"It was kind of 'Hurry up, find a house, anything,' " she recalled. "Now, time is on your side."
Earlier this year, they found a new, single-family house in Haymarket with granite countertops, stainless steel appliances and a yard that backs up to a forested area. The price had been cut from $624,000 to $544,000 -- a stretch, but one they could afford. The builder was eager to make a deal because it had been sitting vacant since April.
"It's much nicer than I ever thought I would have," she said. "Everything is top of the line."
First, though, the Behnkens had to sell their townhouse. It took four months and a $50,000 price reduction.
"I still made a profit, and in the grand scheme I was able to upgrade and come out ahead," said Behnken, a hospital contract specialist with a medical diagnostic laboratory. Her husband is an engineer.
The decline in prices is making other buyers wary because they fear purchasing in a declining market. Scott McCrimmon, 34, a software engineer, has been studying the market for a year, since he and his wife moved to the Washington area from Miami. They are renting a house in Germantown and will wait to see what happens in the spring.
"I have a strong suspicion the market is still a bit overpriced," McCrimmon said. "There may be some basis for why others are not buying, so I'm holding back, too."
Washington Post, November 15, 2006
By Kirstin Downey
Kristy LaLonde, who rents an apartment in Crystal City, spent the past four years "freaking out" as home prices here climbed relentlessly. She feared she would never be able to own the kind of place she had been raised to expect.
Now, she's feeling better.
A dramatically slowed housing market has disappointed home sellers and left real estate agents waiting for the phone to ring. But it has brought relief to would-be homeowners such as LaLonde, 29, a federal policy analyst, and her fiance, Gregory Daphnis, 35, a project manager for a health insurance plan.
Not long ago, they thought the best they could afford was a condominium. Last month, though, they were delighted to find they could qualify to buy a red-brick Colonial in Wheaton -- because the seller had dropped the price from $499,000 to $435,000.
"We feel like we can begin building our life together, start a family," LaLonde said. "We can move somewhere that's not temporary, with a yard, and with a neighborhood community feeling."
The Washington area remains one of the most expensive places in the nation to buy a home. Still, over the past year, as the number of available homes for sale has climbed, prices have flattened or fallen. That has propelled some buyers toward homes that had slipped beyond their reach. It has allowed them more time to shop and afforded them a greater selection. It has also made sellers much more willing to help with such things as closing costs.
The decline in prices is most evident in the District and Northern Virginia, according to figures released last week. The median price of all types of houses and condominiums sold in the District dropped 12 percent in October from the same month a year earlier, dropping from $425,000 to $375,000, according to Metropolitan Regional Information Systems Inc., the region's multiple listing service. Prices fell 6 percent in the same period in the close-in Northern Virginia suburbs, dropping to $458,850 from $490,000, according to MRIS, and were essentially flat in Montgomery County, at about $430,000. The median is the price at which half the homes cost more and half cost less.
"The shoe is on a different foot," said Diana Whitfield, an agent with Long & Foster Real Estate in Burke. "Buyers are realizing they are more in control."
Buyers, particularly the first-timers who feared they had been priced out of homeownership, are gleeful.
Susan O'Hora, 29, an operations manager in international licensing at the Discovery Channel, felt like she was running as fast as possible but still falling behind. After graduating from the University of Richmond and moving to the Washington area in 1999, O'Hora resolutely scaled the career ladder. She has more than doubled her salary, but real estate prices moved up much more quickly. The median home price in the region was $181,600 in the second quarter of 2000 and $443,000 in the same quarter of 2006, an increase of 144 percent, according to the National Association of Realtors.
"It was kind of sad to get better, better jobs and move up in my career when the progress I was making was being so outpaced by the housing market that I thought I would never be able to get anything livable," said O'Hora, who rents a studio apartment near Dupont Circle. But the recent market shift has left her "excited and optimistic" about her prospects.
"I feel like finally I might be able to get in on this," she said. "I feel relieved."
Daniel Moshinsky, 26, a computer programmer for the Census Bureau, also watched prices climb in the five years after he graduated from college, outstripping his wage gains.
"My reaction was horror," he recalled. "I thought, 'Will I ever get a house?' I felt like I had missed the Gold Rush, that everybody was making money in real estate and that I was left out."
Moshinsky, who lives in a townhouse in Silver Spring with three roommates, still can't afford the home he would like. Now, though, he is "hopeful," he said. "I hope prices keep falling a little bit longer. So far they haven't fallen enough to be affordable."
Some people who already own homes but are looking to trade up to a more expensive house are also pleased, even if they are losing out a bit on the selling side. For Deanna Behnken, 26, part of the pleasure of her recent home-buying experience was that she felt no sense of urgency. In late 2003, when she and her husband, Corbin, bought their townhouse in Gainesville, they felt pressured to buy quickly because they feared if they delayed, the property would be snatched up by someone else.
"It was kind of 'Hurry up, find a house, anything,' " she recalled. "Now, time is on your side."
Earlier this year, they found a new, single-family house in Haymarket with granite countertops, stainless steel appliances and a yard that backs up to a forested area. The price had been cut from $624,000 to $544,000 -- a stretch, but one they could afford. The builder was eager to make a deal because it had been sitting vacant since April.
"It's much nicer than I ever thought I would have," she said. "Everything is top of the line."
First, though, the Behnkens had to sell their townhouse. It took four months and a $50,000 price reduction.
"I still made a profit, and in the grand scheme I was able to upgrade and come out ahead," said Behnken, a hospital contract specialist with a medical diagnostic laboratory. Her husband is an engineer.
The decline in prices is making other buyers wary because they fear purchasing in a declining market. Scott McCrimmon, 34, a software engineer, has been studying the market for a year, since he and his wife moved to the Washington area from Miami. They are renting a house in Germantown and will wait to see what happens in the spring.
"I have a strong suspicion the market is still a bit overpriced," McCrimmon said. "There may be some basis for why others are not buying, so I'm holding back, too."
NAR: Housing Spiral Mostly Over
Realty Times, November 13, 2006
By Lew Sichelman
NEW ORLEANS -- The worst of the housing downturn is over for three-quarters of the country, the National Association of Realtors' top economist said here earlier this month.
Noting that like politics, "all real estate is local," David Lereah, the chief economist of the nation's largest trade organization, said 74 percent of the nation's housing markets will once again be expanding "in a sluggish way" in 2007.
Mr. Lereah divides the country into five "divergent" sectors:
Non-Boom Stallers, or places which never participated in the housing boom which began 15 years ago
Non-Boom Gainers, or markets which didn't participate in the boom but grew nevertheless.
Boom Lites, or markets which shared only slightly in the boom.
Average Boomers, or places which took part in the explosion but only on an average basis.
Hot Boomers, or places where house prices jumped out of sight.
Only the last group, which represents 26 percent of the country, still has a ways to go to work their way back to normal, Lereah said at NAR's annual convention here. "The correction is pretty much over with" for the rest, he added.
The economist would not hazard a guess as to how low prices would need to fall in the most overheated markets or how long it would take for them to hit bottom, saying it would be "pure speculation" on his part or that of anyone else.
But he did say that the places where speculators were most active will be the ones that take the longest to work their way back to equilibrium.
He also said price corrections should be welcomed, not feared. "What gives health to the economy is sales -- the number of transactions -- not price," he said. "Every 1 percent drop in prices qualifies 50,000 more potential purchasers."
"We now have the most favorable market for home buyers in years," Lereah said, noting that sellers are starting to be "more realistic about current market conditions" and pricing their properties more appropriately for the downturn.
"Conditions for buyers have improved because sellers are flexible now and mortgage rates are near historic lows," he said. "And sellers who have been in their homes for a normal period of ownership are still seeing very healthy returns on their investments."
Lereah expects existing home sales in 2007 to "coast" at roughly the same level as this year, which, despite a projected 8.6 percent decline to 6.47 million, will go down as the third best year on record.
New home sales, on the other hand, should fall 8.7 percent to 975,000 units, largely because many builders have slowed their pace of construction, according to the NAR economist. Such a decline would be on top of the expected 17.8 percent drop to 1.07 million units this year.
Despite the slow down, however, Lereah is still predicting slight increases in housing prices. For this year, he says the national median for existing homes should rise by 1.9 percent, to $223,700.
And for 2007, he expects a 1.7 percent increase to $227,500.
New homes prices, on the other hand, should slip by 1.1 percent this year, to $238,400, and then go back up 1.3 percent next year, to $241,400, he said.
By Lew Sichelman
NEW ORLEANS -- The worst of the housing downturn is over for three-quarters of the country, the National Association of Realtors' top economist said here earlier this month.
Noting that like politics, "all real estate is local," David Lereah, the chief economist of the nation's largest trade organization, said 74 percent of the nation's housing markets will once again be expanding "in a sluggish way" in 2007.
Mr. Lereah divides the country into five "divergent" sectors:
Non-Boom Stallers, or places which never participated in the housing boom which began 15 years ago
Non-Boom Gainers, or markets which didn't participate in the boom but grew nevertheless.
Boom Lites, or markets which shared only slightly in the boom.
Average Boomers, or places which took part in the explosion but only on an average basis.
Hot Boomers, or places where house prices jumped out of sight.
Only the last group, which represents 26 percent of the country, still has a ways to go to work their way back to normal, Lereah said at NAR's annual convention here. "The correction is pretty much over with" for the rest, he added.
The economist would not hazard a guess as to how low prices would need to fall in the most overheated markets or how long it would take for them to hit bottom, saying it would be "pure speculation" on his part or that of anyone else.
But he did say that the places where speculators were most active will be the ones that take the longest to work their way back to equilibrium.
He also said price corrections should be welcomed, not feared. "What gives health to the economy is sales -- the number of transactions -- not price," he said. "Every 1 percent drop in prices qualifies 50,000 more potential purchasers."
"We now have the most favorable market for home buyers in years," Lereah said, noting that sellers are starting to be "more realistic about current market conditions" and pricing their properties more appropriately for the downturn.
"Conditions for buyers have improved because sellers are flexible now and mortgage rates are near historic lows," he said. "And sellers who have been in their homes for a normal period of ownership are still seeing very healthy returns on their investments."
Lereah expects existing home sales in 2007 to "coast" at roughly the same level as this year, which, despite a projected 8.6 percent decline to 6.47 million, will go down as the third best year on record.
New home sales, on the other hand, should fall 8.7 percent to 975,000 units, largely because many builders have slowed their pace of construction, according to the NAR economist. Such a decline would be on top of the expected 17.8 percent drop to 1.07 million units this year.
Despite the slow down, however, Lereah is still predicting slight increases in housing prices. For this year, he says the national median for existing homes should rise by 1.9 percent, to $223,700.
And for 2007, he expects a 1.7 percent increase to $227,500.
New homes prices, on the other hand, should slip by 1.1 percent this year, to $238,400, and then go back up 1.3 percent next year, to $241,400, he said.
Realtors See 'Perfect Alignment' Of Low Interest Rates, Ample Listings
Bloomberg News, November 11, 2006
By Sharon L. Crenson
There's a bright side to the decline in the U.S. housing market, says the National Association of Realtors: plenty of choice.
"Right now may actually be one of the best times to buy a home," the association said in the first full-page ads in its 98-year history. With "interest rates near record lows," the "large inventory won't last."
The largest U.S. real estate trade association is spending $1.3 million on a two-week campaign that's running in the New York Times, the Wall Street Journal, USA Today, the Los Angeles Times, the Chicago Tribune and The Washington Post. The ads are designed to entice home buyers as sales have slid, inventories have risen and builders are offering incentives.
"There's a big change in psychology and that's what they're reacting to," said Robert Shiller, an economics professor at Yale University, who cut out the ad and showed it to his students. The campaign is a true "sign of the times," he said.
Total existing-home sales, including single-family, townhouses, condominiums and co-ops, dipped 1.9 percent to a seasonally adjusted annual rate of 6.2 million units in September from a level of 6.3 million in August. They were 14 percent below the 7.2 million-unit pace in September 2005, the Realtors group said on Oct. 25.
Last month, the Realtors said the median price for a new U.S. home probably will dip 0.2 percent to $240,500 in 2006, the first decline in 15 years. In October, the Mortgage Bankers Association predicted U.S. new home sales will plunge 18 percent this year and mortgage giant Freddie Mac said declining sales will shave a full percentage point off economic growth in the second half of 2006.
"The market is much better than you might hear or read," National Association of Realtors President Thomas M. Stevens said in a statement on the organization's Web site. "Consumers should take advantage of this perfect alignment of low rates and extraordinary inventory."
One theme in the campaign is that the 3.8 million unsold homes offer "the greatest choices in decades." For sellers, that means it would take seven months to close deals on all the existing homes for sale if no others came on the market.
Another claim the ads make is that buying a home gives you a financial boost. "Homeownership is a safe, secure way to long-term wealth," the ads said.
By Sharon L. Crenson
There's a bright side to the decline in the U.S. housing market, says the National Association of Realtors: plenty of choice.
"Right now may actually be one of the best times to buy a home," the association said in the first full-page ads in its 98-year history. With "interest rates near record lows," the "large inventory won't last."
The largest U.S. real estate trade association is spending $1.3 million on a two-week campaign that's running in the New York Times, the Wall Street Journal, USA Today, the Los Angeles Times, the Chicago Tribune and The Washington Post. The ads are designed to entice home buyers as sales have slid, inventories have risen and builders are offering incentives.
"There's a big change in psychology and that's what they're reacting to," said Robert Shiller, an economics professor at Yale University, who cut out the ad and showed it to his students. The campaign is a true "sign of the times," he said.
Total existing-home sales, including single-family, townhouses, condominiums and co-ops, dipped 1.9 percent to a seasonally adjusted annual rate of 6.2 million units in September from a level of 6.3 million in August. They were 14 percent below the 7.2 million-unit pace in September 2005, the Realtors group said on Oct. 25.
Last month, the Realtors said the median price for a new U.S. home probably will dip 0.2 percent to $240,500 in 2006, the first decline in 15 years. In October, the Mortgage Bankers Association predicted U.S. new home sales will plunge 18 percent this year and mortgage giant Freddie Mac said declining sales will shave a full percentage point off economic growth in the second half of 2006.
"The market is much better than you might hear or read," National Association of Realtors President Thomas M. Stevens said in a statement on the organization's Web site. "Consumers should take advantage of this perfect alignment of low rates and extraordinary inventory."
One theme in the campaign is that the 3.8 million unsold homes offer "the greatest choices in decades." For sellers, that means it would take seven months to close deals on all the existing homes for sale if no others came on the market.
Another claim the ads make is that buying a home gives you a financial boost. "Homeownership is a safe, secure way to long-term wealth," the ads said.
Home Sales Still Sluggish Across Arlington
Sun-Gazette, November 11, 2006
By SCOTT McCAFFREY
Home sales across Arlington in October remained soft, with average sales prices down nearly 20 percent and inventory remaining high headed into the slower winter season.
The good news? It's taking less time to sell a home in Arlington than in most other jurisdictions across Northern Virginia, and sellers are getting a marginally higher percentage of their original list price than those in other parts of the region.
A total of 197 single-family homes, townhouses and condominiums in Arlington changed hands in October, according to figures released Nov. 10 by Metropolitan Regional Information Systems, the area's multiple-listing service.
That's down 19.6 percent from the 245 units that were sold in October 2005.
Counting all units, the average price for properties sold in October was $520,047, down about 9 percent from the $570,883 recorded 12 months before.
The average original listing price of those homes had been $555,819, meaning sellers received 93.6 percent of original list price, down from 98.5 percent a year ago. During the height of the boom market, Arlington homes, on average, were selling for more than what they had been listed for, as buyers bid up the price in a frenzy.
Perhaps not surprisingly, average sales prices varied by type and size of home.
Among single-family homes, the average sales price was $488,583 for those with one or two bedrooms; $608,228 for those with three bedrooms; and $826,850 for those with four or more bedrooms.
For townhouses, the average price was $450,436 for those with one or two bedrooms, $662,900 for those with three bedrooms. There were no sales during the month of townhouses with four or more bedrooms.
The average sales price for condominiums in October was $399,428.
Average sales price also varied by location. In North Arlington's 22207 ZIP Code area, the average price was $801,130, up nearly 7 percent from a year ago. That ZIP code has the largest concentration of single-family homes, so its average price is not diluted by large numbers of less-pricey condominiums.
The average sales price in 22201, also in North Arlington, was $540,488. In South Arlington communities, the average sales price in the 22204 ZIP code was $482,736, and in the 22206 ZIP code, it was $384,777.
It took an average of 75 days for a home to go from listing to ratified contract, which is three times longer than a year ago. At the market's peak, the average number of days on the market contracted to as little as 14.
For sellers, the silver lining was the more than a third of homes sold within a month of listing, and more than half sold within two months. Historically, across Virginia, the average number of days on the market has been about 90.
A total of 374 properties came onto the Arlington market for sale during the month, bringing the number of active listings to nearly 1,200. Slightly under half those properties were single-family homes and townhouses, with the remainder being condominiums.
Figures include most, but not all, homes on the market. Figures are preliminary and are subject to revision.
By SCOTT McCAFFREY
Home sales across Arlington in October remained soft, with average sales prices down nearly 20 percent and inventory remaining high headed into the slower winter season.
The good news? It's taking less time to sell a home in Arlington than in most other jurisdictions across Northern Virginia, and sellers are getting a marginally higher percentage of their original list price than those in other parts of the region.
A total of 197 single-family homes, townhouses and condominiums in Arlington changed hands in October, according to figures released Nov. 10 by Metropolitan Regional Information Systems, the area's multiple-listing service.
That's down 19.6 percent from the 245 units that were sold in October 2005.
Counting all units, the average price for properties sold in October was $520,047, down about 9 percent from the $570,883 recorded 12 months before.
The average original listing price of those homes had been $555,819, meaning sellers received 93.6 percent of original list price, down from 98.5 percent a year ago. During the height of the boom market, Arlington homes, on average, were selling for more than what they had been listed for, as buyers bid up the price in a frenzy.
Perhaps not surprisingly, average sales prices varied by type and size of home.
Among single-family homes, the average sales price was $488,583 for those with one or two bedrooms; $608,228 for those with three bedrooms; and $826,850 for those with four or more bedrooms.
For townhouses, the average price was $450,436 for those with one or two bedrooms, $662,900 for those with three bedrooms. There were no sales during the month of townhouses with four or more bedrooms.
The average sales price for condominiums in October was $399,428.
Average sales price also varied by location. In North Arlington's 22207 ZIP Code area, the average price was $801,130, up nearly 7 percent from a year ago. That ZIP code has the largest concentration of single-family homes, so its average price is not diluted by large numbers of less-pricey condominiums.
The average sales price in 22201, also in North Arlington, was $540,488. In South Arlington communities, the average sales price in the 22204 ZIP code was $482,736, and in the 22206 ZIP code, it was $384,777.
It took an average of 75 days for a home to go from listing to ratified contract, which is three times longer than a year ago. At the market's peak, the average number of days on the market contracted to as little as 14.
For sellers, the silver lining was the more than a third of homes sold within a month of listing, and more than half sold within two months. Historically, across Virginia, the average number of days on the market has been about 90.
A total of 374 properties came onto the Arlington market for sale during the month, bringing the number of active listings to nearly 1,200. Slightly under half those properties were single-family homes and townhouses, with the remainder being condominiums.
Figures include most, but not all, homes on the market. Figures are preliminary and are subject to revision.
16 November 2006
Bursting the Bubble Bubble
Smartmoney.com, October 16, 2006
By Ray Hennessey
I'VE HAD QUITE ENOUGH of bubble talk. Any time anyone talks about real estate nowadays, their faces turn grave and they speak of the value of their home as if they've just seen the asteroid that's going to make us go the way of triceratops. House values are falling, mortgage rates are rising, inventory of existing homes is growing. Repent. The end of the world is nigh.
I'm not so sure. If anything, now may be the right time to buy or sell real estate.
Full disclosure: I speak with the conviction of someone who has to be right, since I'm one of the potential losers in the midst of selling one property and buying another. But this is more than the alcoholic explaining to himself in the middle of the night that he can hold his liquor. I'm in the real-estate market today because I believe the time is right, and the apocalypse will wait.
Here's why: There are still buyers in the market. I know; they've traipsed their muddy boots through an open house at my existing place, and, oddly, left full handprints all over my bathroom mirror. (I choose not to ask.) One of these buyers, with the blessing, will write me a check and change the name on the mailbox. What may be different now than, say, even a year ago is that these folks are more price-sensitive. They have choices, and less competition, so they're in a position to negotiate. As a seller, I had to respond by listing my place at a realistic price, even, in some cases, undercutting the price tags of comparable homes in my area. Shudder the thought.
But, ah, you may say. There lies proof that the bubble is bursting. Prices are going
down. I'll concede that, as I must, but it ain't a bubble. Bubbles burst, often with a quick drop in prices where values of assets fall by 50% or more. It happened with tulips and web-content companies, but it's not happening in housing. Real estate just isn't that liquid. You can't buy and sell it quickly. God forbid if you could. Given the conditions in the market, quick real-estate transactions would've driven home prices even higher, where a three-bedroom townhouse with riparian rights could be bandied around like another Pets.com. Then, the fall in prices would be more severe. But that's not the nature of this particular beast. Instead, we have prices coming down to levels where thinking people, after a long, often tedious, process, are willing to buy. That sounds like an efficient market to my ears.
Will I get less for the place I'm selling now than I would've a few years ago? Sure.
Will I still make money on it? Of course. I have a colleague who complains about having to come down about $100,000 on his house to attract buyers. He's still tripling the amount he paid for the place. Yet, he talks like Ben Bernanke broke into his house, stole money from his 401(k) and kicked his dog on the way out. Perspective, methinks, is in order.
And, speaking of Bernanke, let's look at rates for a second. Mortgage rates are higher, but they're not historically high. And, as a buyer, I've been amazed at their elasticity. I'm not locking in quickly because there's a chance that rates will go down.
And banks are competing for my business by offering me attractive deals. Reasonable
rates, a healthy inventory, realistic prices. Ayn Rand would be proud.
Are there areas at risk? Yes. I'm buying a home, not a property, so my time horizon for growing the value of my real estate is long. Those who are speculating in the market are more likely to lose out than in the past. Also, new home builders, as we've seen, are in a bit of trouble, but that's mostly their own fault, since they made the bad business decision of overbuilding, swelling supply and overstripping demand. Serves 'em right.
Also, there are a bunch of people who are going to get caught short because they bought too high and took an exotic mortgage to boot. When adjustable-rate mortgages start re-setting, some people are going to find their monthly payments soar. But, again, the fault can be laid at the feet of the buyers, not the banks. (I'm not giving mortgage brokers a free pass, mind you. I'm still offered all sorts of deals that I need a nautical chart and abacus to figure out. But I'm an old-fashioned guy who likes to curl up with a glass of port and a 30-year fixed.) Still, many people simply made the conscious decision to buy more house than they could afford. They'll now have to sell, or face foreclosure. But rather than ending up moving into a Fridgidaire box outside Penn Station, they'll downsize. And probably end up in a more modest home they should've purchased in the first place.
So, please, for the sake of all that's holy, stop talking about the housing bubble. For one thing, it just makes you look uninformed. And, worse, it may scare buyers away from the place I'm trying to sell.
By Ray Hennessey
I'VE HAD QUITE ENOUGH of bubble talk. Any time anyone talks about real estate nowadays, their faces turn grave and they speak of the value of their home as if they've just seen the asteroid that's going to make us go the way of triceratops. House values are falling, mortgage rates are rising, inventory of existing homes is growing. Repent. The end of the world is nigh.
I'm not so sure. If anything, now may be the right time to buy or sell real estate.
Full disclosure: I speak with the conviction of someone who has to be right, since I'm one of the potential losers in the midst of selling one property and buying another. But this is more than the alcoholic explaining to himself in the middle of the night that he can hold his liquor. I'm in the real-estate market today because I believe the time is right, and the apocalypse will wait.
Here's why: There are still buyers in the market. I know; they've traipsed their muddy boots through an open house at my existing place, and, oddly, left full handprints all over my bathroom mirror. (I choose not to ask.) One of these buyers, with the blessing, will write me a check and change the name on the mailbox. What may be different now than, say, even a year ago is that these folks are more price-sensitive. They have choices, and less competition, so they're in a position to negotiate. As a seller, I had to respond by listing my place at a realistic price, even, in some cases, undercutting the price tags of comparable homes in my area. Shudder the thought.
But, ah, you may say. There lies proof that the bubble is bursting. Prices are going
down. I'll concede that, as I must, but it ain't a bubble. Bubbles burst, often with a quick drop in prices where values of assets fall by 50% or more. It happened with tulips and web-content companies, but it's not happening in housing. Real estate just isn't that liquid. You can't buy and sell it quickly. God forbid if you could. Given the conditions in the market, quick real-estate transactions would've driven home prices even higher, where a three-bedroom townhouse with riparian rights could be bandied around like another Pets.com. Then, the fall in prices would be more severe. But that's not the nature of this particular beast. Instead, we have prices coming down to levels where thinking people, after a long, often tedious, process, are willing to buy. That sounds like an efficient market to my ears.
Will I get less for the place I'm selling now than I would've a few years ago? Sure.
Will I still make money on it? Of course. I have a colleague who complains about having to come down about $100,000 on his house to attract buyers. He's still tripling the amount he paid for the place. Yet, he talks like Ben Bernanke broke into his house, stole money from his 401(k) and kicked his dog on the way out. Perspective, methinks, is in order.
And, speaking of Bernanke, let's look at rates for a second. Mortgage rates are higher, but they're not historically high. And, as a buyer, I've been amazed at their elasticity. I'm not locking in quickly because there's a chance that rates will go down.
And banks are competing for my business by offering me attractive deals. Reasonable
rates, a healthy inventory, realistic prices. Ayn Rand would be proud.
Are there areas at risk? Yes. I'm buying a home, not a property, so my time horizon for growing the value of my real estate is long. Those who are speculating in the market are more likely to lose out than in the past. Also, new home builders, as we've seen, are in a bit of trouble, but that's mostly their own fault, since they made the bad business decision of overbuilding, swelling supply and overstripping demand. Serves 'em right.
Also, there are a bunch of people who are going to get caught short because they bought too high and took an exotic mortgage to boot. When adjustable-rate mortgages start re-setting, some people are going to find their monthly payments soar. But, again, the fault can be laid at the feet of the buyers, not the banks. (I'm not giving mortgage brokers a free pass, mind you. I'm still offered all sorts of deals that I need a nautical chart and abacus to figure out. But I'm an old-fashioned guy who likes to curl up with a glass of port and a 30-year fixed.) Still, many people simply made the conscious decision to buy more house than they could afford. They'll now have to sell, or face foreclosure. But rather than ending up moving into a Fridgidaire box outside Penn Station, they'll downsize. And probably end up in a more modest home they should've purchased in the first place.
So, please, for the sake of all that's holy, stop talking about the housing bubble. For one thing, it just makes you look uninformed. And, worse, it may scare buyers away from the place I'm trying to sell.
06 November 2006
Appraising Zillow
Washington Post, November 4, 2006
By Kenneth R. Harney
Have you ever checked out the satellite photos and market-value estimates of homes in your neighborhood on Zillow.com, the Internet real estate site that says it offers "free, instant valuations and data for 67 million-plus homes?"
Zillow was launched with major media fanfare in February, backed with a reported $57 million in venture capital. It is one of the most popular real estate sites on the Web, visited millions of times a month by sellers, buyers, agents, lenders and homeowners. It also has begun distributing its free Zestimates through Yahoo.com and real estate brokerage sites.
But now Zillow is coming under harsh scrutiny. In a complaint filed Oct. 26 with the Federal Trade Commission, the National Community Reinvestment Coalition said Zillow knowingly deceives the public by presenting its property estimates as accurate, whereas they are frequently far off the mark.
The nonprofit coalition, made up of housing and economic justice organizations around the country, says its audit of Zillow's accuracy documented that its valuations are within 10 percent of actual market value "less than one-third of the time."
The allegedly erroneous estimates are especially harmful in low- and moderate-income and minority neighborhoods, the complaint said.
"While overvaluations were prevalent in predominantly white areas, undervaluations were more frequent in communities that were predominantly African-American or Latino by census tract," the complaint said.
That alleged disparity, in turn, has opened the door to a variety of deceptive and predatory real estate practices in those neighborhoods.
"NCRC and its members are aware of a growing number of real estate and lending professionals who are using the misinformation on Zillow.com to perpetrate fraud in our nation's markets, often by targeting consumers in violation of federal and state fair housing laws," the complaint said. It added that NCRC was considering filing fair-housing and equal-opportunity complaints against the company with the federal government.
In a statement, Zillow called the coalition's complaint "groundless."
"As we say consistently and prominently on our Web site, Zillow is a free research tool for consumers, and Zestimates are designed to be a starting point for consumers who want to learn about the value of houses. We make every effort to explain on our site the role of Zestimates as a research tool, as well as to clearly display our rates of accuracy for every area we cover."
In an interview, Stan Humphries, Zillow's director of advanced analytics, said his company's internal audits found a median margin of error of 7.2 percent nationwide. Audits also found that, contrary to NCRC's claims, undervaluations were more common in higher-cost areas, whereas overvaluations were more typical in lower-priced neighborhoods. Humphries questioned whether NCRC "has much of an empirical basis for [its] claims."
In the complaint, NCRC cited two other studies -- one by MSN Money, an online service, and a second by R. James Girardot, president of an appraisal firm in Washington state. MSN Money examined Zillow's valuation estimates for a sample of houses in five metropolitan areas and found them within 10 percent accuracy 29 percent of the time. The five metropolitan markets -- Seattle; Minneapolis-St. Paul; Scottsdale, Ariz.; Cincinnati; and Portland, Ore. -- all were ranked by Zillow as among its most accurate areas for valuations, according to the complaint.
Girardot's study covered 200 houses, comparing Zillow valuations with actual closed selling prices, and found inaccuracies ranging from 11 to 50 percent. In one case, Zillow's estimate valued a property at $246,865, but the house sold for $489,950 last July.
Putting aside the specifics of the complaint before the FTC, the Zillow-NCRC dispute throws light on a simmering tension within the residential real estate market: On one hand, mortgage lenders are demanding valuation alternatives that are faster and cheaper than traditional, full-blown appraisals. The proprietary technology Zillow uses to produce its estimates is a form of automated valuation model (AVM.)
Many banks and mortgage companies use commercially marketed AVMs for home equity loan valuations and to help spot fraudulent or grossly inaccurate appraisals. Traditional appraisals generally cost $300 to $500; AVMs can cost a high-volume lender $20 or less.
On the other side of the issue, professional appraisers are threatened by lenders' push for lower costs and high-tech valuations. Though they sometimes use commercial AVMs as data supplements, appraisers insist that their time-tested, hands-on methods produce the most accurate valuations.
Appraiser Vicky Cassens Zillioux says "valuing a property for a financial decision is not a game -- and should not be treated lightly by the consumer, lender or the vendor supplying that value." She notes that appraisers are held to high standards of accuracy and legal liability by lenders and regulators, and "a similar level of accuracy should be expected by the consumer at Zillow.com."
By Kenneth R. Harney
Have you ever checked out the satellite photos and market-value estimates of homes in your neighborhood on Zillow.com, the Internet real estate site that says it offers "free, instant valuations and data for 67 million-plus homes?"
Zillow was launched with major media fanfare in February, backed with a reported $57 million in venture capital. It is one of the most popular real estate sites on the Web, visited millions of times a month by sellers, buyers, agents, lenders and homeowners. It also has begun distributing its free Zestimates through Yahoo.com and real estate brokerage sites.
But now Zillow is coming under harsh scrutiny. In a complaint filed Oct. 26 with the Federal Trade Commission, the National Community Reinvestment Coalition said Zillow knowingly deceives the public by presenting its property estimates as accurate, whereas they are frequently far off the mark.
The nonprofit coalition, made up of housing and economic justice organizations around the country, says its audit of Zillow's accuracy documented that its valuations are within 10 percent of actual market value "less than one-third of the time."
The allegedly erroneous estimates are especially harmful in low- and moderate-income and minority neighborhoods, the complaint said.
"While overvaluations were prevalent in predominantly white areas, undervaluations were more frequent in communities that were predominantly African-American or Latino by census tract," the complaint said.
That alleged disparity, in turn, has opened the door to a variety of deceptive and predatory real estate practices in those neighborhoods.
"NCRC and its members are aware of a growing number of real estate and lending professionals who are using the misinformation on Zillow.com to perpetrate fraud in our nation's markets, often by targeting consumers in violation of federal and state fair housing laws," the complaint said. It added that NCRC was considering filing fair-housing and equal-opportunity complaints against the company with the federal government.
In a statement, Zillow called the coalition's complaint "groundless."
"As we say consistently and prominently on our Web site, Zillow is a free research tool for consumers, and Zestimates are designed to be a starting point for consumers who want to learn about the value of houses. We make every effort to explain on our site the role of Zestimates as a research tool, as well as to clearly display our rates of accuracy for every area we cover."
In an interview, Stan Humphries, Zillow's director of advanced analytics, said his company's internal audits found a median margin of error of 7.2 percent nationwide. Audits also found that, contrary to NCRC's claims, undervaluations were more common in higher-cost areas, whereas overvaluations were more typical in lower-priced neighborhoods. Humphries questioned whether NCRC "has much of an empirical basis for [its] claims."
In the complaint, NCRC cited two other studies -- one by MSN Money, an online service, and a second by R. James Girardot, president of an appraisal firm in Washington state. MSN Money examined Zillow's valuation estimates for a sample of houses in five metropolitan areas and found them within 10 percent accuracy 29 percent of the time. The five metropolitan markets -- Seattle; Minneapolis-St. Paul; Scottsdale, Ariz.; Cincinnati; and Portland, Ore. -- all were ranked by Zillow as among its most accurate areas for valuations, according to the complaint.
Girardot's study covered 200 houses, comparing Zillow valuations with actual closed selling prices, and found inaccuracies ranging from 11 to 50 percent. In one case, Zillow's estimate valued a property at $246,865, but the house sold for $489,950 last July.
Putting aside the specifics of the complaint before the FTC, the Zillow-NCRC dispute throws light on a simmering tension within the residential real estate market: On one hand, mortgage lenders are demanding valuation alternatives that are faster and cheaper than traditional, full-blown appraisals. The proprietary technology Zillow uses to produce its estimates is a form of automated valuation model (AVM.)
Many banks and mortgage companies use commercially marketed AVMs for home equity loan valuations and to help spot fraudulent or grossly inaccurate appraisals. Traditional appraisals generally cost $300 to $500; AVMs can cost a high-volume lender $20 or less.
On the other side of the issue, professional appraisers are threatened by lenders' push for lower costs and high-tech valuations. Though they sometimes use commercial AVMs as data supplements, appraisers insist that their time-tested, hands-on methods produce the most accurate valuations.
Appraiser Vicky Cassens Zillioux says "valuing a property for a financial decision is not a game -- and should not be treated lightly by the consumer, lender or the vendor supplying that value." She notes that appraisers are held to high standards of accuracy and legal liability by lenders and regulators, and "a similar level of accuracy should be expected by the consumer at Zillow.com."
10 Reasons Local Real Estate Market Will Stay Strong
Arlington Sun-Gazette, November 3, 2006
By David Howell
Top Ten Reasons To Be Optimistic About Northern Virginia's Housing Market: We don't have David Letterman's comedy writers and, for us, real estate is serious business. But we like Dave's countdown format, so here are the top ten reasons to be optimistic about Northern Virginia's housing market:
10. The softening of the market. Believe it or not, that's a good thing. There is no doubt that the market is slower and softer in every respect when compared to the last several years. The 20- to 25-percent appreciation rates were not sustainable. And the longer they continued, the harder the fall would be. (More on this topic below.)
Markets seek balance, and that is precisely what this market is doing. The pendulum has swung in favor of buyers, and that is good for the long-term health of the region's housing market.
9. The media. OK, this may seem a bit tongue-in-cheek, but area homeowners should rejoice every time the national media and even local media predict doom and gloom for area housing - because they have so often been wrong. The relentless drumbeat of negativity seems almost totally disconnected from reality. Our current favorite: Forbes predicts that the median price of a home in metro D.C. will increase only 3 percent over the next ten years.
Not 3 percent annually, mind you. A total of 3 percent. In the best regional economy in the country.
8. History. The compounded average annual increase in the average sales price of a home in the metro D.C. area over the last 30 years is 7 percent. (Forbes, are you paying attention?) Seven percent is normal; 7 percent is sustainable. We won't see that in 2006, but an individual's housing decision should be a long-term decision. Feel good about owning a home here - unless you have to sell right now.
7. Income. Three of the 10 wealthiest counties as measured by median household income in the United States are in Northern Virginia: Loudoun (No. 1), Fairfax (No. 2), and Prince William (No. 7). The entire D.C. region ranks second only to San Jose, Calif., in median income, and we have the lowest regional poverty rate in the country - 7 percent. That means we have a stable, broad-basedeconomy.
6. Virginia. Virginia is one of a handful of states with a AAA bond rating and continues to attract businesses - and jobs - from all over the world. The state not only has a huge number of well-paying white collar jobs, but with Hampton Roads among the busiest seaports in the United States, the state also has a huge industrial base. The future for the Commonwealth looks very good.
5. Northern Virginia. We are the economic engine of Virginia. The pace of commercial development is accelerating; we have the lowest office vacancy rates in the country. Our local “downtown” - Tysons Corner - has more office space and more jobs than the downtowns of most major metropolitan areas.
The emerging town center developments throughout the region will create more jobs closer to major transportation arteries. Rail to Dulles will help fuel and sustain the region's growth. (More on transportation issues later.)
4. Interest Rates. Mortgage interest rates are already low and have been trending slightly lower over the last couple of months. Yes, they were a full point lower in the spring of 2005, and the rise in rates contributed to the slowing of the market. A brief historical note: McEnearney Associates was founded in 1980 when mortgage interest rates topped 17 percent, and people still bought and sold homes. Today's rates look pretty darn good.
3. Federal spending. Although the pace of growth in federal spending in the region has slowed compared to the first half of the decade, Northern Virginia still receives more than 50 cents of every federal dollar spent in the region, and federal jobs and federal spending provide a very strong foundation for our broad-based economy.
2. Demographics. We still have net migration to the area, and we are forming households at a pace that exceeds the number of new housing units being built.
And, while in the transitioning market we are seeing an increase in rentals and a decrease in sales activity, people still have to have a place to live.
1. Jobs. The region has the lowest unemployment rate in the country - 3.5 percent - and Northern Virginia's is lowest in the region - right around 2 percent.
We continue to create jobs at a significant pace. Here's just one example: 22,000 new jobs will be coming to Fort Belvoir over the next five years, the equivalent of a new Pentagon coming to the I-95 corridor. And these jobs, by and large, will be well-paying, highly technical jobs.
This is our passionately held conviction: there is no better place in the United States to own a home than in this metropolitan area, and Northern Virginia is the best place in the region.
(David Howell is managing broker of McEnearney Associates' McLean office. He authored the following column, which is reprinted with permission.)
By David Howell
Top Ten Reasons To Be Optimistic About Northern Virginia's Housing Market: We don't have David Letterman's comedy writers and, for us, real estate is serious business. But we like Dave's countdown format, so here are the top ten reasons to be optimistic about Northern Virginia's housing market:
10. The softening of the market. Believe it or not, that's a good thing. There is no doubt that the market is slower and softer in every respect when compared to the last several years. The 20- to 25-percent appreciation rates were not sustainable. And the longer they continued, the harder the fall would be. (More on this topic below.)
Markets seek balance, and that is precisely what this market is doing. The pendulum has swung in favor of buyers, and that is good for the long-term health of the region's housing market.
9. The media. OK, this may seem a bit tongue-in-cheek, but area homeowners should rejoice every time the national media and even local media predict doom and gloom for area housing - because they have so often been wrong. The relentless drumbeat of negativity seems almost totally disconnected from reality. Our current favorite: Forbes predicts that the median price of a home in metro D.C. will increase only 3 percent over the next ten years.
Not 3 percent annually, mind you. A total of 3 percent. In the best regional economy in the country.
8. History. The compounded average annual increase in the average sales price of a home in the metro D.C. area over the last 30 years is 7 percent. (Forbes, are you paying attention?) Seven percent is normal; 7 percent is sustainable. We won't see that in 2006, but an individual's housing decision should be a long-term decision. Feel good about owning a home here - unless you have to sell right now.
7. Income. Three of the 10 wealthiest counties as measured by median household income in the United States are in Northern Virginia: Loudoun (No. 1), Fairfax (No. 2), and Prince William (No. 7). The entire D.C. region ranks second only to San Jose, Calif., in median income, and we have the lowest regional poverty rate in the country - 7 percent. That means we have a stable, broad-basedeconomy.
6. Virginia. Virginia is one of a handful of states with a AAA bond rating and continues to attract businesses - and jobs - from all over the world. The state not only has a huge number of well-paying white collar jobs, but with Hampton Roads among the busiest seaports in the United States, the state also has a huge industrial base. The future for the Commonwealth looks very good.
5. Northern Virginia. We are the economic engine of Virginia. The pace of commercial development is accelerating; we have the lowest office vacancy rates in the country. Our local “downtown” - Tysons Corner - has more office space and more jobs than the downtowns of most major metropolitan areas.
The emerging town center developments throughout the region will create more jobs closer to major transportation arteries. Rail to Dulles will help fuel and sustain the region's growth. (More on transportation issues later.)
4. Interest Rates. Mortgage interest rates are already low and have been trending slightly lower over the last couple of months. Yes, they were a full point lower in the spring of 2005, and the rise in rates contributed to the slowing of the market. A brief historical note: McEnearney Associates was founded in 1980 when mortgage interest rates topped 17 percent, and people still bought and sold homes. Today's rates look pretty darn good.
3. Federal spending. Although the pace of growth in federal spending in the region has slowed compared to the first half of the decade, Northern Virginia still receives more than 50 cents of every federal dollar spent in the region, and federal jobs and federal spending provide a very strong foundation for our broad-based economy.
2. Demographics. We still have net migration to the area, and we are forming households at a pace that exceeds the number of new housing units being built.
And, while in the transitioning market we are seeing an increase in rentals and a decrease in sales activity, people still have to have a place to live.
1. Jobs. The region has the lowest unemployment rate in the country - 3.5 percent - and Northern Virginia's is lowest in the region - right around 2 percent.
We continue to create jobs at a significant pace. Here's just one example: 22,000 new jobs will be coming to Fort Belvoir over the next five years, the equivalent of a new Pentagon coming to the I-95 corridor. And these jobs, by and large, will be well-paying, highly technical jobs.
This is our passionately held conviction: there is no better place in the United States to own a home than in this metropolitan area, and Northern Virginia is the best place in the region.
(David Howell is managing broker of McEnearney Associates' McLean office. He authored the following column, which is reprinted with permission.)
A Record Drop In Home Prices
Washington Post, October 26, 2006
By Kirstin Downey
The price of existing homes last month fell 2.2 percent, the largest monthly decline in the almost four decades the number has been tracked, according to an industry report released yesterday.
Nationwide, the number of existing single-family homes sold fell 14.2 percent in September compared with September 2005, according to the report from the National Association of Realtors. The number of sales has fallen each month since March.
Prices fell everywhere in the country, with the Northeast and West most affected. Declines were more moderate in the South, which includes the Washington area.
The median price nationally of an existing single-family home in September was $220,000, down from $225,000 a year earlier. It was the largest monthly decline since the Realtors began monitoring prices monthly in 1968. It was the second month in a row that home prices fell compared with a year earlier. The median is the point at which half of the homes cost more and half cost less.
One reason prices are dropping is that sellers are having a harder time finding buyers.
Nazirahk Amen, 39, a natural medicine practitioner and acupuncturist, thought a buyer would snap up his three-bedroom, three-bath Cape Cod in Takoma Park. He was so confident that his organic garden and greenhouse would be a particularly strong lure in that community that he bought another house nearby and moved. For the past two months, he has been making two mortgage payments, and recently reduced the price $25,000 to attract a bidder.
"Of course it's frustrating," Amen said. "I'm looking for this to end. It's frustrating, to say the least."
Realtors' association officials blame the continuing slump on what Lawrence Yun, the group's senior economist, called "confidence issues." Yun said buyers are waiting until they think the market has hit bottom, particularly because high prices have made houses less affordable.
"Psychological factors have people on the sidelines," Yun said. "They are waiting to time the market."
Yun saw reason for optimism, and thinks an upturn is at hand. He said the September figures represent a "trough in the market," because for the past two months, the inventory of unsold homes has fallen slightly.
"Supply was artificially elevated" earlier in the year when real estate investors bailed out of the market, Yun said.
Thomas M. Stevens, a Vienna-based real estate broker who serves as president of the national trade group, said in a statement that he was heartened by the decline in properties coming onto the market, which he said would lead to a better "supply balance."
Charles W. McMillion, an economist and president of District-based MBG Information Services, said he saw little sign that the decline was ending. "I don't see stability when sales continue to decline sharply and price continued to decline sharply," McMillion said. "It's pretty hard to argue we've reached a sustainable level."
Peter Morici, an economist at the University of Maryland, said reduced inventory of unsold houses may mean "frustrated buyers are removing their homes from the market." Morici said that major price adjustments will be needed to bring the market back into balance.
"The speculative frenzy of recent years is causing a major adjustment, and the happy talk of Realtors is prolonging the process," Morici said. "The absence of realistic analysis about the extent of overvaluation is characteristic in an industry that sees nothing but an upward progression for values, but houses like any other asset can be overpriced. . . . Things are likely to get worse before they get better."
According to yesterday's report, prices in the Northeast in September dropped 5.1 percent compared with a year earlier and those in the West dropped 4.3 percent. In the South, they were down 1.6 percent.
The federal government is scheduled to release figures today on sales of new homes, which have also been falling this year. That weakness has been reflected in the earnings reports of national home builders. This week, for instance, Dallas-based builder Centex Corp., which has 40 projects in the Washington area, reported that its earnings in the quarter ended Sept. 30 fell 59 percent. "We have been aggressively responding to deteriorating market conditions" by reducing land purchases and cutting staff, Timothy R. Eller, Centex's chairman and chief executive, said in a statement.
By Kirstin Downey
The price of existing homes last month fell 2.2 percent, the largest monthly decline in the almost four decades the number has been tracked, according to an industry report released yesterday.
Nationwide, the number of existing single-family homes sold fell 14.2 percent in September compared with September 2005, according to the report from the National Association of Realtors. The number of sales has fallen each month since March.
Prices fell everywhere in the country, with the Northeast and West most affected. Declines were more moderate in the South, which includes the Washington area.
The median price nationally of an existing single-family home in September was $220,000, down from $225,000 a year earlier. It was the largest monthly decline since the Realtors began monitoring prices monthly in 1968. It was the second month in a row that home prices fell compared with a year earlier. The median is the point at which half of the homes cost more and half cost less.
One reason prices are dropping is that sellers are having a harder time finding buyers.
Nazirahk Amen, 39, a natural medicine practitioner and acupuncturist, thought a buyer would snap up his three-bedroom, three-bath Cape Cod in Takoma Park. He was so confident that his organic garden and greenhouse would be a particularly strong lure in that community that he bought another house nearby and moved. For the past two months, he has been making two mortgage payments, and recently reduced the price $25,000 to attract a bidder.
"Of course it's frustrating," Amen said. "I'm looking for this to end. It's frustrating, to say the least."
Realtors' association officials blame the continuing slump on what Lawrence Yun, the group's senior economist, called "confidence issues." Yun said buyers are waiting until they think the market has hit bottom, particularly because high prices have made houses less affordable.
"Psychological factors have people on the sidelines," Yun said. "They are waiting to time the market."
Yun saw reason for optimism, and thinks an upturn is at hand. He said the September figures represent a "trough in the market," because for the past two months, the inventory of unsold homes has fallen slightly.
"Supply was artificially elevated" earlier in the year when real estate investors bailed out of the market, Yun said.
Thomas M. Stevens, a Vienna-based real estate broker who serves as president of the national trade group, said in a statement that he was heartened by the decline in properties coming onto the market, which he said would lead to a better "supply balance."
Charles W. McMillion, an economist and president of District-based MBG Information Services, said he saw little sign that the decline was ending. "I don't see stability when sales continue to decline sharply and price continued to decline sharply," McMillion said. "It's pretty hard to argue we've reached a sustainable level."
Peter Morici, an economist at the University of Maryland, said reduced inventory of unsold houses may mean "frustrated buyers are removing their homes from the market." Morici said that major price adjustments will be needed to bring the market back into balance.
"The speculative frenzy of recent years is causing a major adjustment, and the happy talk of Realtors is prolonging the process," Morici said. "The absence of realistic analysis about the extent of overvaluation is characteristic in an industry that sees nothing but an upward progression for values, but houses like any other asset can be overpriced. . . . Things are likely to get worse before they get better."
According to yesterday's report, prices in the Northeast in September dropped 5.1 percent compared with a year earlier and those in the West dropped 4.3 percent. In the South, they were down 1.6 percent.
The federal government is scheduled to release figures today on sales of new homes, which have also been falling this year. That weakness has been reflected in the earnings reports of national home builders. This week, for instance, Dallas-based builder Centex Corp., which has 40 projects in the Washington area, reported that its earnings in the quarter ended Sept. 30 fell 59 percent. "We have been aggressively responding to deteriorating market conditions" by reducing land purchases and cutting staff, Timothy R. Eller, Centex's chairman and chief executive, said in a statement.
02 September 2006
Mortgage Rates Continue to Drift Lower as Housing Market Eases Back from Record Highs
Realty Times, September 1, 2006
McLEAN, VA -- Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey (PMMSSM) in which the 30-year fixed-rate mortgage (FRM) averaged 6.44 percent with an average 0.4 point for the week ending August 31, 2006, down from last week's average of 6.48 percent. Last year at this time, the 30-year FRM averaged 5.71 percent. This is the lowest the 30-year FRM has been since the week ending April 6, 2006, when it averaged 6.43 percent.
The average for the 15-year FRM this week is 6.14 percent, with an average 0.4 point, down from last week when it averaged 6.18 percent. A year ago, the 15-year FRM averaged 5.32 percent. This is the lowest the 15-year FRM has been since the week ending April 6, when it was 6.10 percent.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) fell to 6.11 percent this week, with an average 0.5 point, down from last week's rate of 6.14 percent. A year ago, the five-year ARM averaged 5.30 percent. This is the lowest the five-year ARM has been since March 30, 2006, when it was 6.02 percent.
One-year Treasury-indexed ARMs averaged 5.59 percent this week, with an average 0.7 point, was down from last week when it averaged 5.60 percent. At this time last year, the one-year ARM averaged 4.48 percent. This is the lowest the one-year ARM has been since April 6, 2006, when it was 5.57 percent.
"Mortgage rates continued to drift lower this week in large part because of the cooling in the housing market and in consumer confidence, thus giving financial markets reason to believe that economic growth will moderate and inflation
will remain in check," said Frank Nothaft, Freddie Mac vice president and chief economist. "As a matter of fact, the 30-year FRM is nearly 40 basis points lower than its peak of 6.8 percent in July of this year."
"By some indicators, personal incomes are growing faster than the cost of housing. Combined with the still historically low mortgage rates, this will help to support the housing industry as it levels off from the record highs of the last few years."
McLEAN, VA -- Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey (PMMSSM) in which the 30-year fixed-rate mortgage (FRM) averaged 6.44 percent with an average 0.4 point for the week ending August 31, 2006, down from last week's average of 6.48 percent. Last year at this time, the 30-year FRM averaged 5.71 percent. This is the lowest the 30-year FRM has been since the week ending April 6, 2006, when it averaged 6.43 percent.
The average for the 15-year FRM this week is 6.14 percent, with an average 0.4 point, down from last week when it averaged 6.18 percent. A year ago, the 15-year FRM averaged 5.32 percent. This is the lowest the 15-year FRM has been since the week ending April 6, when it was 6.10 percent.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) fell to 6.11 percent this week, with an average 0.5 point, down from last week's rate of 6.14 percent. A year ago, the five-year ARM averaged 5.30 percent. This is the lowest the five-year ARM has been since March 30, 2006, when it was 6.02 percent.
One-year Treasury-indexed ARMs averaged 5.59 percent this week, with an average 0.7 point, was down from last week when it averaged 5.60 percent. At this time last year, the one-year ARM averaged 4.48 percent. This is the lowest the one-year ARM has been since April 6, 2006, when it was 5.57 percent.
"Mortgage rates continued to drift lower this week in large part because of the cooling in the housing market and in consumer confidence, thus giving financial markets reason to believe that economic growth will moderate and inflation
will remain in check," said Frank Nothaft, Freddie Mac vice president and chief economist. "As a matter of fact, the 30-year FRM is nearly 40 basis points lower than its peak of 6.8 percent in July of this year."
"By some indicators, personal incomes are growing faster than the cost of housing. Combined with the still historically low mortgage rates, this will help to support the housing industry as it levels off from the record highs of the last few years."
Most Buyers Begin by Looking on Web
Washington Times, September 1, 2006
By M. Anthony Carr
The latest buyer survey by the National Association of Realtors reveals that 80 percent of all buyers now begin their search online for real estate.
That's quite a surge in just a few years, when only about 7 percent of all buyers looked online when real estate and the Internet first met.
If any industry benefits the consumer online, it's real estate. There are millions of houses advertised online for buyers to peruse. They can view floor plans and watch video tours. It's all there, and it's free.
We take for granted what it takes to create such a system.
Today's electronic multiple listing service (MLS) began years ago on paper. Realtors across the country would turn in listings with a picture to the processing manager, who then handed them off to the local Realtor association.
Associations would then print up a book or cards and then hand-deliver them to real estate offices -- usually one per agent -- either weekly or biweekly. The MLS book was one of the most highly sought-after commodities in the Realtor's toolbox.
The MLS serves as a co-op between competing real estate agents so they can sell each others' listings.
The electronic MLS also starts and ends with these agents. Without the brokerages that gather data on millions of homes and pay billions in fees and programming costs, there would be no Internet-based real estate database.
There would be places online for homeowners to advertise their homes for sale, but there would not be a pure database, where buyers and sellers could come together with secure data updated daily.
I can't think of any other databases of homes for sale online that operate like the MLS.
The For-Sale-by-Owner-type Web sites are not databases. They are advertising, much like what you would find in a newspaper Web site.
Often, even after the property is sold, the ad for that property remains online for some time. Buyers don't really know if what they're clicking through is still on the market.
The Realtor-operated MLS systems are internally regulated. Agents can be fined for registering erroneous information or not updating information soon enough.
In fact, the information is so good that other Web site operators have taken aim at these online services. They want the information for their own sites.
NAR's Center for Realtor Technology has released two programs to help op "scraping" of the data by online predators.
"NoScrape" is a program that places the data into a rendering, or graphic file, from which data cannot be copied. Computers aimed at scraping data from real estate sites cannot strip the information from this type of Web page.
A second anti-piracy program is "reCaptcha," which "is a way to tell computers and humans apart and is based on CAPTCHA technology." CAPTCHA stands for Completely Automated Public Turing test to tell Computers and Humans Apart.
It identifies the party trying to access your site as a human or a computer program by generating questions that only a human can answer correctly. The reCaptcha program displays a distorted image of a word that a user must identify correctly and retype to gain passage to parts of the Web. This type of program is also used by financial, ticketing and Web log sites to ensure humans are using the site rather than computers.
By M. Anthony Carr
The latest buyer survey by the National Association of Realtors reveals that 80 percent of all buyers now begin their search online for real estate.
That's quite a surge in just a few years, when only about 7 percent of all buyers looked online when real estate and the Internet first met.
If any industry benefits the consumer online, it's real estate. There are millions of houses advertised online for buyers to peruse. They can view floor plans and watch video tours. It's all there, and it's free.
We take for granted what it takes to create such a system.
Today's electronic multiple listing service (MLS) began years ago on paper. Realtors across the country would turn in listings with a picture to the processing manager, who then handed them off to the local Realtor association.
Associations would then print up a book or cards and then hand-deliver them to real estate offices -- usually one per agent -- either weekly or biweekly. The MLS book was one of the most highly sought-after commodities in the Realtor's toolbox.
The MLS serves as a co-op between competing real estate agents so they can sell each others' listings.
The electronic MLS also starts and ends with these agents. Without the brokerages that gather data on millions of homes and pay billions in fees and programming costs, there would be no Internet-based real estate database.
There would be places online for homeowners to advertise their homes for sale, but there would not be a pure database, where buyers and sellers could come together with secure data updated daily.
I can't think of any other databases of homes for sale online that operate like the MLS.
The For-Sale-by-Owner-type Web sites are not databases. They are advertising, much like what you would find in a newspaper Web site.
Often, even after the property is sold, the ad for that property remains online for some time. Buyers don't really know if what they're clicking through is still on the market.
The Realtor-operated MLS systems are internally regulated. Agents can be fined for registering erroneous information or not updating information soon enough.
In fact, the information is so good that other Web site operators have taken aim at these online services. They want the information for their own sites.
NAR's Center for Realtor Technology has released two programs to help op "scraping" of the data by online predators.
"NoScrape" is a program that places the data into a rendering, or graphic file, from which data cannot be copied. Computers aimed at scraping data from real estate sites cannot strip the information from this type of Web page.
A second anti-piracy program is "reCaptcha," which "is a way to tell computers and humans apart and is based on CAPTCHA technology." CAPTCHA stands for Completely Automated Public Turing test to tell Computers and Humans Apart.
It identifies the party trying to access your site as a human or a computer program by generating questions that only a human can answer correctly. The reCaptcha program displays a distorted image of a word that a user must identify correctly and retype to gain passage to parts of the Web. This type of program is also used by financial, ticketing and Web log sites to ensure humans are using the site rather than computers.
Good Time to Shift as Rates Drop
Washington Times, September 1, 2006By Henry Savage
The advertisements are increasing. The media has picked up on it. The bloggers are talking about it. And yes, mortgage rates have dropped more than many of us realize.
After almost two years of gradually rising rates, there are signs that long-term mortgage rates may have ebbed. The 10-year Treasury bond, the best benchmark to gauge the direction of 30-year fixed-rate mortgages, is showing signs of a downward trend.
The question is whether the latest drop in rates is the beginning of a long-term trend or a mere blip.
On June 30, 2005, the 10-year Treasury bond yielded 3.94 percent. Since then, the yield has risen slowly, peaking on June 28 at 5.25 percent. Since then, the T-bond has dropped to 4.79 percent.
Likewise, 30-year mortgage rates have dropped, some would say significantly. Back in early July, refinancing with zero points and zero-closing-costs might carry a rate of 7.125 or 7.25 percent. Today, the same zero-closing-cost option has dropped to almost 6.50 percent.
In the old days when the consumer's only choice was to take a rate that carried thousands of dollars in points and closing costs, a 1/2-percent or 3/4-percent drop in rates would have little effect.
Today, with the zero-closing-cost option, even a 1/2-percent drop can save the homeowner some money. The principal and interest (P&I) payment on a $350,000 loan at 7.25 percent, for example, is $2,388 per month. At 6.75 percent, the P&I drops to $2,270, a difference of $118.
Whether saving $118 a month is significant depends upon how you look at it. Think of it this way: Shaving 1/2 a percent off your mortgage rate will buy you almost 40 gallons of gas every month at $3 a gallon. Now I have your attention.
Homeowners are beginning to respond to the drop in rates and the incessant stimuli provided by mortgage advertisers. The Mortgage Bankers Association recently reported that refinancings, while down more than 25 percent from the same period last year, are at a recent five-month high.
But it's not just the drop in long-term rates that's creating the rush to refinance. Adjustable rate mortgages (ARMs), as most folks know, have skyrocketed in recent months. ARM rates as low as 3 percent a few years ago have, or will soon be, adjusting to new fully indexed rate of somewhere between 7 and 8 percent, depending upon the ARM's index and margin.
The newest trend in the media is to warn homeowners carrying adjustable rates about the pending increase in rate and payment. These warnings should be heeded. The sharp acceleration in home values created a sharp demand for low-payment mortgages, such as ARMs, interest only programs, and the so-called "option ARMs."
My advice on what to do differs depending on the type of program you have. Let me try to summarize.
• Folks who are carrying a long-term ARM with an interest-only payment option: These are programs with a fixed rate for seven or more years that allows a low, interest-only payment. Compare your current rate with market rates. Since the rate is fixed for a significant period, you may not be in a rush to refinance unless the current rate is well above market rates.
• Folks holding an ARM that's due to be reset anytime within the next 48 months: My advice is to consider refinancing now, unless your plan is to sell prior to the rate adjustment. Rates may, indeed, fall more in the next few months, but there's certainly no guarantee. The recent drop in long-term rates, coupled with low- and no-closing-cost options, provide a window of opportunity.
• Folks carrying an option ARM who are making the minimum payment and negatively amortizing the loan: Negative amortization means that the minimum payment allowed doesn't cover the interest charged, thereby increasing the balance each month. These folks need to get out now, not necessarily because of the negative amortization feature, but because the rates on these programs are now well north of 7 percent. If you think you can't afford more than the minimum payment, speak with an experienced loan officer about a long-term interest-only program that carries a low rate.
Whatever your current situation, it certainly doesn't hurt to pull out your mortgage note and make sure that there are not products available in the market today that can improve your overall financial picture.
The advertisements are increasing. The media has picked up on it. The bloggers are talking about it. And yes, mortgage rates have dropped more than many of us realize.
After almost two years of gradually rising rates, there are signs that long-term mortgage rates may have ebbed. The 10-year Treasury bond, the best benchmark to gauge the direction of 30-year fixed-rate mortgages, is showing signs of a downward trend.
The question is whether the latest drop in rates is the beginning of a long-term trend or a mere blip.
On June 30, 2005, the 10-year Treasury bond yielded 3.94 percent. Since then, the yield has risen slowly, peaking on June 28 at 5.25 percent. Since then, the T-bond has dropped to 4.79 percent.
Likewise, 30-year mortgage rates have dropped, some would say significantly. Back in early July, refinancing with zero points and zero-closing-costs might carry a rate of 7.125 or 7.25 percent. Today, the same zero-closing-cost option has dropped to almost 6.50 percent.
In the old days when the consumer's only choice was to take a rate that carried thousands of dollars in points and closing costs, a 1/2-percent or 3/4-percent drop in rates would have little effect.
Today, with the zero-closing-cost option, even a 1/2-percent drop can save the homeowner some money. The principal and interest (P&I) payment on a $350,000 loan at 7.25 percent, for example, is $2,388 per month. At 6.75 percent, the P&I drops to $2,270, a difference of $118.
Whether saving $118 a month is significant depends upon how you look at it. Think of it this way: Shaving 1/2 a percent off your mortgage rate will buy you almost 40 gallons of gas every month at $3 a gallon. Now I have your attention.
Homeowners are beginning to respond to the drop in rates and the incessant stimuli provided by mortgage advertisers. The Mortgage Bankers Association recently reported that refinancings, while down more than 25 percent from the same period last year, are at a recent five-month high.
But it's not just the drop in long-term rates that's creating the rush to refinance. Adjustable rate mortgages (ARMs), as most folks know, have skyrocketed in recent months. ARM rates as low as 3 percent a few years ago have, or will soon be, adjusting to new fully indexed rate of somewhere between 7 and 8 percent, depending upon the ARM's index and margin.
The newest trend in the media is to warn homeowners carrying adjustable rates about the pending increase in rate and payment. These warnings should be heeded. The sharp acceleration in home values created a sharp demand for low-payment mortgages, such as ARMs, interest only programs, and the so-called "option ARMs."
My advice on what to do differs depending on the type of program you have. Let me try to summarize.
• Folks who are carrying a long-term ARM with an interest-only payment option: These are programs with a fixed rate for seven or more years that allows a low, interest-only payment. Compare your current rate with market rates. Since the rate is fixed for a significant period, you may not be in a rush to refinance unless the current rate is well above market rates.
• Folks holding an ARM that's due to be reset anytime within the next 48 months: My advice is to consider refinancing now, unless your plan is to sell prior to the rate adjustment. Rates may, indeed, fall more in the next few months, but there's certainly no guarantee. The recent drop in long-term rates, coupled with low- and no-closing-cost options, provide a window of opportunity.
• Folks carrying an option ARM who are making the minimum payment and negatively amortizing the loan: Negative amortization means that the minimum payment allowed doesn't cover the interest charged, thereby increasing the balance each month. These folks need to get out now, not necessarily because of the negative amortization feature, but because the rates on these programs are now well north of 7 percent. If you think you can't afford more than the minimum payment, speak with an experienced loan officer about a long-term interest-only program that carries a low rate.
Whatever your current situation, it certainly doesn't hurt to pull out your mortgage note and make sure that there are not products available in the market today that can improve your overall financial picture.
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