Groups Differ on Whether Market Will Face Trouble
Washington Post, January 31, 2006
By Sandra Fleishman
The Washington area housing market has softened but is still in relatively decent shape except for what appears to be a glut of condos, according to two studies released yesterday. But the researchers came to different conclusions about the potential for problems stemming from condo overbuilding.
Both MetroStudy, a Houston-based market research firm, and Delta Associates, an Alexandria-based affiliate of Transwestern Co., found that condo activity was red-hot here but now is cooling.
MetroStudy's Kenneth Wenhold, director of the company's Virginia-Maryland division, predicted in an interview that so many condos are under construction or planned, particularly in Arlington and Fairfax counties, that "there is a very significant problem" of overbuilding and the potential for projects to go bust.
Arlington and Fairfax have 14,156 units under construction and almost 28,000 planned or proposed, Wenhold said. "But in the same area, last year we only sold 4,001 condos." In 14 counties in Maryland, including those around the District and Baltimore, Wenhold said, 3,901 condo units are under construction.
The Delta report said the nation's condo conversion market, in which developers have furiously changed rental units into condos, is "largely played out for this cycle."
But the report concludes that the expectations of continued strong job growth, strong housing demand and low interest rates, plus the relative lack of affordability of other kinds of housing, will keep condo sales from crashing in most markets, including in the Washington area.
"We are likely to experience a soft landing in most major metro markets, but less gentle in others," the Delta report found. Cities with the greatest risk of a hard landing -- those with a lot of condo production and conversion, high levels of speculator activity and modest levels of job growth -- are Las Vegas, Miami and Phoenix, the report said.
"On the other hand, we would be more confident of a soft landing" in Washington, Boston and Los Angeles, it said.
MetroStudy's fourth-quarter analysis of the area said listings of all types of housing for sale have doubled since July and new-home inventory for sale has jumped from 6.6 months of supply to 12.2 months. But much of that jump is due to the flood of condos. "If you remove the thousands of condominium units that are being built in Arlington County, Va., housing inventories drop to a much more reasonable 7.6 month supply," according to the report.
31 January 2006
26 January 2006
BB&T Restricts Loans to Developers - Bank Opposes Eminent Domain
Washington Post, January 26, 2006
By Brooke A. Masters
BB&T Corp., a North Carolina-based financial services company with a substantial Washington area presence, said it will not lend money to private real estate development projects that rely on local governments to seize land from reluctant sellers.
The bank and legal analysts said they believe BB&T is the first major financial institution to announce such a policy since the U.S. Supreme Court ruled in June that using "eminent domain" powers for privately owned projects did not violate the Constitution. The court ruling in Kelo v. City of New London sparked public opposition and efforts in Congress and 41 states to put new limits on local governments' power to condemn private land.
Now BB&T, the nation's ninth-largest financial services company in terms of assets, has waded into the debate. "Our number one concern is a philosophical and principle-based one," chief credit officer W. Kendall Chalk said in an interview. "We do a large amount of commercial lending. . . . There is the potential for abuse of eminent domain."
BB&T's home state of North Carolina already has strict limits on the use of eminent domain, but Chalk said the new policy was sparked by a mixed-use development project in another jurisdiction that he would not identify. BB&T operates in 11 Southeast states and the District. The bank has about 250 branches in the Washington and Baltimore areas.
Spokesmen for several other major banks, including Bank of America Corp. and SunTrust Banks Inc., said they had no plans for similar policies. Wachovia Corp. said it does not comment on its lending policies.
Property-rights groups praised BB&T's decision. "It's tremendous that BB&T is willing to lead the country in saying no to eminent domain abuse," said Dana Berliner, a senior attorney with the Institute for Justice, which represented landowner Susette Kelo in the Supreme Court case. "It's the right thing to do, and it's a sensible business decision. These projects are so universally hated that they get held up in court and some of them fail."
The New London, Conn., project that was the subject of Kelo's case is a cautionary example, Berliner said.
The city won the case by a 5 to 4 vote, but the decision inflamed property owners around the country.
Justice Sandra Day O'Connor articulated those fears in a dissent: "The specter of condemnation hangs over all property. Nothing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory."
Even after the decision, when the city's New London Development Corp. tried to remove Kelo and give her cottage to a developer to build a hotel and condominiums, Connecticut Gov. M. Jodi Rell stepped in and demanded that the eviction notice be rescinded. Kelo is still in the house, and no development has begun.
The U.S. House of Representatives has passed a bill that would prohibit the use of federal money for privately owned projects such as the ones BB&T will not finance, and legislation is pending in the Senate. Forty-one states have taken up the issue, Berliner said.
Chalk said he expected the new policy to have "almost no economic" impact. BB&T does not oppose the use of eminent domain for traditional public projects such as road construction or publicly owned facilities, he said.
A study by the Institute for Justice identified 10,000 controversies that involved government efforts to take private land to further privately owned economic development projects. But other analysts said the numbers are much smaller, perhaps several hundred a year.
Columbia University law professor Thomas W. Merrill said the BB&T's policy's main impact would probably be on the bank's public image. "They're not really forgoing a lot of income. It's grandstanding to a particular audience," he said. "Other banks based in congested places like New York may not want to take such a public stand. I don't think you would want to alienate the anti-sprawl redevelopment crowd."
BB&T shares closed at $39.30 yesterday, down 9 cents.
By Brooke A. Masters
BB&T Corp., a North Carolina-based financial services company with a substantial Washington area presence, said it will not lend money to private real estate development projects that rely on local governments to seize land from reluctant sellers.
The bank and legal analysts said they believe BB&T is the first major financial institution to announce such a policy since the U.S. Supreme Court ruled in June that using "eminent domain" powers for privately owned projects did not violate the Constitution. The court ruling in Kelo v. City of New London sparked public opposition and efforts in Congress and 41 states to put new limits on local governments' power to condemn private land.
Now BB&T, the nation's ninth-largest financial services company in terms of assets, has waded into the debate. "Our number one concern is a philosophical and principle-based one," chief credit officer W. Kendall Chalk said in an interview. "We do a large amount of commercial lending. . . . There is the potential for abuse of eminent domain."
BB&T's home state of North Carolina already has strict limits on the use of eminent domain, but Chalk said the new policy was sparked by a mixed-use development project in another jurisdiction that he would not identify. BB&T operates in 11 Southeast states and the District. The bank has about 250 branches in the Washington and Baltimore areas.
Spokesmen for several other major banks, including Bank of America Corp. and SunTrust Banks Inc., said they had no plans for similar policies. Wachovia Corp. said it does not comment on its lending policies.
Property-rights groups praised BB&T's decision. "It's tremendous that BB&T is willing to lead the country in saying no to eminent domain abuse," said Dana Berliner, a senior attorney with the Institute for Justice, which represented landowner Susette Kelo in the Supreme Court case. "It's the right thing to do, and it's a sensible business decision. These projects are so universally hated that they get held up in court and some of them fail."
The New London, Conn., project that was the subject of Kelo's case is a cautionary example, Berliner said.
The city won the case by a 5 to 4 vote, but the decision inflamed property owners around the country.
Justice Sandra Day O'Connor articulated those fears in a dissent: "The specter of condemnation hangs over all property. Nothing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory."
Even after the decision, when the city's New London Development Corp. tried to remove Kelo and give her cottage to a developer to build a hotel and condominiums, Connecticut Gov. M. Jodi Rell stepped in and demanded that the eviction notice be rescinded. Kelo is still in the house, and no development has begun.
The U.S. House of Representatives has passed a bill that would prohibit the use of federal money for privately owned projects such as the ones BB&T will not finance, and legislation is pending in the Senate. Forty-one states have taken up the issue, Berliner said.
Chalk said he expected the new policy to have "almost no economic" impact. BB&T does not oppose the use of eminent domain for traditional public projects such as road construction or publicly owned facilities, he said.
A study by the Institute for Justice identified 10,000 controversies that involved government efforts to take private land to further privately owned economic development projects. But other analysts said the numbers are much smaller, perhaps several hundred a year.
Columbia University law professor Thomas W. Merrill said the BB&T's policy's main impact would probably be on the bank's public image. "They're not really forgoing a lot of income. It's grandstanding to a particular audience," he said. "Other banks based in congested places like New York may not want to take such a public stand. I don't think you would want to alienate the anti-sprawl redevelopment crowd."
BB&T shares closed at $39.30 yesterday, down 9 cents.
21 January 2006
N.Va. Home Sales Down in '05, But Total Volume Rises
Sun Gazette, January 19, 2006
By SCOTT McCAFFREY
To coin a phrase: It was the best of times, it was the worst of times, in Northern Virginia real estate during 2005.
Home sales across the inner suburbs declined 10.7 percent compared to a year before. That’s among the poorest performances of the real estate market in the past three decades.
And yet the average sales price of a home rose 21.7 percent during the year, the second best increase since the Northern Virginia Association of Realtors began compiling records in 1975.
Add it all up, and about $15.7 billion worth of residential real estate changed hands across Fairfax and Arlington counties and the cities of Alexandria, Falls Church and Fairfax during 2005. That’s a record high, and is approximately double the amount of revenue generated by the local real estate market a scant four years ago.
All told, 29,235 properties were sold across the region in 2005, which remains the third best sales figure in 30 years but is well below the 30,580 sales recorded in 2003 and the record 32,735 sales recorded in 2004.
Those who see the world as a glass half-full will note that the 2005 sales were higher than those posted in 2001 and 2002, which were seen as very strong years for sales growth in the region.
Those who see the world as a glass half-empty, however, will point out that 2005 is the first year since 1995 that sales totals declined across the region. That year, they dipped 12.2 percent.
The biggest decrease recorded since 1975 came in 1992, when sales declined 32.3 percent from a year before. Double-digit sales dips are uncommon but not rare; they occurred in 1980, 1982, 1987, 1989, 1991, 1995 as well as 2005.
As for average sales price, the 21.7-percent increase posted in 2005 was second only to the 21.8-percent increase a year before. No other single year has shown as much value appreciation – only 1991 (up 17.3 percent) and 1987 (up 16.6 percent) come close.
And the average price keeps rising: the average sales price recorded in December was $552,621. That’s up 15.9 percent from December 2004, suggesting that while the rate of appreciation of slowing, it is not at an end.
In the broader Northern Virginia market, which includes the outlying suburbs of Loudoun and Prince William counties as well as the inner suburbs, sales for 2005 totaled 53,576. That’s down 5.8 percent from a year before, and represents $26.7 billion in transactions.
The average sales price for the broader market in 2005 was $498,109, up 22.5 percent from the average price recorded in 2004.
By SCOTT McCAFFREY
To coin a phrase: It was the best of times, it was the worst of times, in Northern Virginia real estate during 2005.
Home sales across the inner suburbs declined 10.7 percent compared to a year before. That’s among the poorest performances of the real estate market in the past three decades.
And yet the average sales price of a home rose 21.7 percent during the year, the second best increase since the Northern Virginia Association of Realtors began compiling records in 1975.
Add it all up, and about $15.7 billion worth of residential real estate changed hands across Fairfax and Arlington counties and the cities of Alexandria, Falls Church and Fairfax during 2005. That’s a record high, and is approximately double the amount of revenue generated by the local real estate market a scant four years ago.
All told, 29,235 properties were sold across the region in 2005, which remains the third best sales figure in 30 years but is well below the 30,580 sales recorded in 2003 and the record 32,735 sales recorded in 2004.
Those who see the world as a glass half-full will note that the 2005 sales were higher than those posted in 2001 and 2002, which were seen as very strong years for sales growth in the region.
Those who see the world as a glass half-empty, however, will point out that 2005 is the first year since 1995 that sales totals declined across the region. That year, they dipped 12.2 percent.
The biggest decrease recorded since 1975 came in 1992, when sales declined 32.3 percent from a year before. Double-digit sales dips are uncommon but not rare; they occurred in 1980, 1982, 1987, 1989, 1991, 1995 as well as 2005.
As for average sales price, the 21.7-percent increase posted in 2005 was second only to the 21.8-percent increase a year before. No other single year has shown as much value appreciation – only 1991 (up 17.3 percent) and 1987 (up 16.6 percent) come close.
And the average price keeps rising: the average sales price recorded in December was $552,621. That’s up 15.9 percent from December 2004, suggesting that while the rate of appreciation of slowing, it is not at an end.
In the broader Northern Virginia market, which includes the outlying suburbs of Loudoun and Prince William counties as well as the inner suburbs, sales for 2005 totaled 53,576. That’s down 5.8 percent from a year before, and represents $26.7 billion in transactions.
The average sales price for the broader market in 2005 was $498,109, up 22.5 percent from the average price recorded in 2004.
Down Payments' Downward Trend
Washington Post, January 21, 2006
By Tomoeh Murakami Tse
More than four out of every 10 recent first-time home buyers financed their purchases with no-down-payment loans, according to a study released by the National Association of Realtors this week.
That's an increase of about 54 percent over the past two years. Analysts say the upsurge means more buyers have entered the market who have a greater risk of defaulting on their mortgages.
"That is a very big increase. It's almost certainly due to the fact that you have a lot of people feeling very stretched," said economist Dean Baker of the Center for Economic and Policy Research. They can't afford traditional mortgages, "prices are going through the roof and this is how they're responding."
The findings come at a time when the booming real estate market is showing increasing signs of slowing. More than a few sellers in the Washington region have reduced asking prices, and buyers are taking their time looking at a rising number of homes on the market.
Because those who apply for zero-down loans often have little or no savings, analysts say they are more likely to let mortgage payments lapse. In a worst-case scenario, such borrowers might be forced to sell, potentially flooding the market with homes and driving down values, which would affect all owners in an area.
"The increased ease of mortgage lending is propping up the market," said Susan Wachter, a real estate economist at the University of Pennsylvania's Wharton School, adding, "Everyone's exposed."
The survey covered people who bought and sold homes from August 2004 through July 2005. The association said 43 percent of first-time buyers surveyed financed 100 percent of their homes, up from 28 percent two years ago when the trade group began tracking such figures. Less than two in 10 repeat home buyers had no-down-payment loans. The median down payment -- the point at which half of the down payments were smaller and half larger -- for first-time buyers was just 2 percent. For all buyers, it was 13 percent, lower than the traditional 20 percent down payment.
Keith Gumbinger, vice president of HSH Associates, a real estate research firm in New Jersey, warned against reading too much into the numbers. "The fact is that the number all by itself doesn't necessarily describe the motivation of the people underneath it," he said. Investors or speculators are likely to put no money down with the expectation that they could resell the properties at a much higher value quickly, Gumbinger said, and others who could have afforded to put money down might have chosen not to because they didn't want to draw down their other assets.
Particularly in high-cost areas such as the Washington region, nontraditional loans present an opportunity for first-time buyers to own, with the community benefiting from the trickle-down effects of high homeownership, said Paul Bishop, the real estate trade group's research manager.
The figures were part of the group's annual report on home buyer and seller characteristics. The association mailed questionnaires to more than 90,000 people who bought homes during the period covered and received 7,813 usable responses.
One of the areas the survey explored was the for-sale-by-owner market. According to the report, such properties accounted for 13 percent of the market, down from 15 percent in 1995 and 20 percent in 1987.
Furthermore, the median sale price for homes sold through agents was $230,000, compared with $198,200 for those sold by owners. Thomas Stevens, the association's president, attributed the 16 percent difference to lack of understanding of the home-selling process among people who try to go it alone. Agents, he said, were able to maximize market exposure and generate multiple bids.
Colby Sambrotto, chief operating officer of http://forsalebyowner.com/ , questioned the numbers. "It certainly doesn't ring true to us," he said, adding that his five-year-old company, which brings buyers and sellers together online, has doubled its Internet traffic and listings in the past year.
Here are other highlights from the survey:
· Seventy-seven percent of home buyers said they used the Internet in their search, up from 41 percent in 2001 and 2 percent in 1995. Nearly a quarter of home buyers said they first saw on the Internet the house they ended up buying. That's up from 15 percent last year.
· First-time home buyers represented 40 percent of the market. The South region, which includes the Washington area, had among the lowest proportion of first-time buyers in the nation, with 36 percent.
· The median price of a home purchased by first-time buyers was $150,000. For repeat buyers, it was $235,000.
· The median income for first-time home buyers was $57,200. Overall, the median income was $71,600, a roughly 7 percent increase compared with the previous year.
· Whites represented 77 percent of first-time buyers, compared with 87 percent for repeat buyers.
· Almost seven out of 10 first-time home buyers purchased a single-family house, compared with nearly eight out of 10 for repeat buyers.
· The median size of a house purchased by first-time buyers was 1,546 square feet. For repeat buyers, it was 2,015 square feet.
· First-time home buyers listed house size, neighborhood quality and distance from work and school as the top three areas in which they compromised. Repeat buyers said they compromised most on house size, planned expenditures and distance from work and school.
· A third of home buyers were 34 or younger. Six percent were less than 25 years old.
· Married couples made up 61 percent of home buyers, compared with 70 percent in 1995.
· Single women made up 21 percent of home buyers, compared with 9 percent for single men.
By Tomoeh Murakami Tse
More than four out of every 10 recent first-time home buyers financed their purchases with no-down-payment loans, according to a study released by the National Association of Realtors this week.
That's an increase of about 54 percent over the past two years. Analysts say the upsurge means more buyers have entered the market who have a greater risk of defaulting on their mortgages.
"That is a very big increase. It's almost certainly due to the fact that you have a lot of people feeling very stretched," said economist Dean Baker of the Center for Economic and Policy Research. They can't afford traditional mortgages, "prices are going through the roof and this is how they're responding."
The findings come at a time when the booming real estate market is showing increasing signs of slowing. More than a few sellers in the Washington region have reduced asking prices, and buyers are taking their time looking at a rising number of homes on the market.
Because those who apply for zero-down loans often have little or no savings, analysts say they are more likely to let mortgage payments lapse. In a worst-case scenario, such borrowers might be forced to sell, potentially flooding the market with homes and driving down values, which would affect all owners in an area.
"The increased ease of mortgage lending is propping up the market," said Susan Wachter, a real estate economist at the University of Pennsylvania's Wharton School, adding, "Everyone's exposed."
The survey covered people who bought and sold homes from August 2004 through July 2005. The association said 43 percent of first-time buyers surveyed financed 100 percent of their homes, up from 28 percent two years ago when the trade group began tracking such figures. Less than two in 10 repeat home buyers had no-down-payment loans. The median down payment -- the point at which half of the down payments were smaller and half larger -- for first-time buyers was just 2 percent. For all buyers, it was 13 percent, lower than the traditional 20 percent down payment.
Keith Gumbinger, vice president of HSH Associates, a real estate research firm in New Jersey, warned against reading too much into the numbers. "The fact is that the number all by itself doesn't necessarily describe the motivation of the people underneath it," he said. Investors or speculators are likely to put no money down with the expectation that they could resell the properties at a much higher value quickly, Gumbinger said, and others who could have afforded to put money down might have chosen not to because they didn't want to draw down their other assets.
Particularly in high-cost areas such as the Washington region, nontraditional loans present an opportunity for first-time buyers to own, with the community benefiting from the trickle-down effects of high homeownership, said Paul Bishop, the real estate trade group's research manager.
The figures were part of the group's annual report on home buyer and seller characteristics. The association mailed questionnaires to more than 90,000 people who bought homes during the period covered and received 7,813 usable responses.
One of the areas the survey explored was the for-sale-by-owner market. According to the report, such properties accounted for 13 percent of the market, down from 15 percent in 1995 and 20 percent in 1987.
Furthermore, the median sale price for homes sold through agents was $230,000, compared with $198,200 for those sold by owners. Thomas Stevens, the association's president, attributed the 16 percent difference to lack of understanding of the home-selling process among people who try to go it alone. Agents, he said, were able to maximize market exposure and generate multiple bids.
Colby Sambrotto, chief operating officer of http://forsalebyowner.com/ , questioned the numbers. "It certainly doesn't ring true to us," he said, adding that his five-year-old company, which brings buyers and sellers together online, has doubled its Internet traffic and listings in the past year.
Here are other highlights from the survey:
· Seventy-seven percent of home buyers said they used the Internet in their search, up from 41 percent in 2001 and 2 percent in 1995. Nearly a quarter of home buyers said they first saw on the Internet the house they ended up buying. That's up from 15 percent last year.
· First-time home buyers represented 40 percent of the market. The South region, which includes the Washington area, had among the lowest proportion of first-time buyers in the nation, with 36 percent.
· The median price of a home purchased by first-time buyers was $150,000. For repeat buyers, it was $235,000.
· The median income for first-time home buyers was $57,200. Overall, the median income was $71,600, a roughly 7 percent increase compared with the previous year.
· Whites represented 77 percent of first-time buyers, compared with 87 percent for repeat buyers.
· Almost seven out of 10 first-time home buyers purchased a single-family house, compared with nearly eight out of 10 for repeat buyers.
· The median size of a house purchased by first-time buyers was 1,546 square feet. For repeat buyers, it was 2,015 square feet.
· First-time home buyers listed house size, neighborhood quality and distance from work and school as the top three areas in which they compromised. Repeat buyers said they compromised most on house size, planned expenditures and distance from work and school.
· A third of home buyers were 34 or younger. Six percent were less than 25 years old.
· Married couples made up 61 percent of home buyers, compared with 70 percent in 1995.
· Single women made up 21 percent of home buyers, compared with 9 percent for single men.
Realtor's networking can pay off for buyer
Washington Times, January 20, 2006
By M. Anthony Carr
At an online real estate discussion group, the question came up, and I've heard it before: Is it bad to take a referral for my mortgage broker from a real estate agent? The quick answer is no.
When it comes to the real estate industry in a local area, it's a pretty small community. Agents, lenders, various inspectors, insurance professionals and home warranty providers all know each other -- very well, I might add. Keep in mind that in the seven years since you purchased your last house -- the average time between home purchases -- they have worked together on dozens, if not scores, of transactions.
The vendors might even have sponsored the agents' Christmas party or gone to their children's soccer games. So, yes, they know each other, probably even like each other, just like you know and like the vendors who work with you in your business.
If you didn't get to know your vendors or you found out you didn't like them, would you want to do business with them? A recent industry survey revealed that 42 percent of all buyers already knew their agent before they used them. That's a good thing. Building relationships builds business. That's one of the first business-building principles in any endeavor. Just like you chose your agent because you or someone you knew trusted him, most agents select ancillary service providers the same way.
So here are five reasons why an agent likes to encircle him or herself with loan officers, insurance providers and inspectors they know and use over and over again.
• They like to use people they know. Familiarity is a good thing. If they know who they're working with, they are confident they can approach the vendor with problems in the transaction.
• Agents can hold them accountable. If the home inspector doesn't find an item that obviously was defective, the agent will not be shy to approach that person and file a complaint, peg him at their next meeting, go to his boss -- whatever it takes to get it solved. This is, of course, assuming you have a direct, assertive agent working for you.
• Using the same people gets a business rhythm going. When you've worked with the same fix-it guy, you know his style, his timing, his professionalism. You know that if he hasn't returned the call in a couple hours, he did get the call from you and that he will call you soon. You know the mortgage broker is going to be upfront with you and with your clients. Most important, you know you will get the job done.
• Business is referral and referral is business. These residual service providers are part of the Realtor's referral network. While federal laws prevent agents from receiving gifts of monetary value from these providers for their referrals, the referral is still legal, encouraged and sought after. In real estate, the referral is more secure than any other lead in a transaction. By working with a tight circle of professional service providers, the agent will receive referrals and feel comfortable sending out referrals to this network.
• Friends like to work with friends. Hopefully, your agent isn't letting friendship cloud his judgment in referring business; however, it's pretty common that friends like to work with their friends. If my clients and customers are going to need services, I'm going to refer them to someone who is good at what he does and who, hopefully, is a nice person. I've never heard a referral like this: "He's a good loan officer, but I can't stand him. Here, use him." Most agents and mortgage brokers who refer business to each other actually like each other. The main reason I find they like each other is because they bend over backward to get the job done.
By M. Anthony Carr
At an online real estate discussion group, the question came up, and I've heard it before: Is it bad to take a referral for my mortgage broker from a real estate agent? The quick answer is no.
When it comes to the real estate industry in a local area, it's a pretty small community. Agents, lenders, various inspectors, insurance professionals and home warranty providers all know each other -- very well, I might add. Keep in mind that in the seven years since you purchased your last house -- the average time between home purchases -- they have worked together on dozens, if not scores, of transactions.
The vendors might even have sponsored the agents' Christmas party or gone to their children's soccer games. So, yes, they know each other, probably even like each other, just like you know and like the vendors who work with you in your business.
If you didn't get to know your vendors or you found out you didn't like them, would you want to do business with them? A recent industry survey revealed that 42 percent of all buyers already knew their agent before they used them. That's a good thing. Building relationships builds business. That's one of the first business-building principles in any endeavor. Just like you chose your agent because you or someone you knew trusted him, most agents select ancillary service providers the same way.
So here are five reasons why an agent likes to encircle him or herself with loan officers, insurance providers and inspectors they know and use over and over again.
• They like to use people they know. Familiarity is a good thing. If they know who they're working with, they are confident they can approach the vendor with problems in the transaction.
• Agents can hold them accountable. If the home inspector doesn't find an item that obviously was defective, the agent will not be shy to approach that person and file a complaint, peg him at their next meeting, go to his boss -- whatever it takes to get it solved. This is, of course, assuming you have a direct, assertive agent working for you.
• Using the same people gets a business rhythm going. When you've worked with the same fix-it guy, you know his style, his timing, his professionalism. You know that if he hasn't returned the call in a couple hours, he did get the call from you and that he will call you soon. You know the mortgage broker is going to be upfront with you and with your clients. Most important, you know you will get the job done.
• Business is referral and referral is business. These residual service providers are part of the Realtor's referral network. While federal laws prevent agents from receiving gifts of monetary value from these providers for their referrals, the referral is still legal, encouraged and sought after. In real estate, the referral is more secure than any other lead in a transaction. By working with a tight circle of professional service providers, the agent will receive referrals and feel comfortable sending out referrals to this network.
• Friends like to work with friends. Hopefully, your agent isn't letting friendship cloud his judgment in referring business; however, it's pretty common that friends like to work with their friends. If my clients and customers are going to need services, I'm going to refer them to someone who is good at what he does and who, hopefully, is a nice person. I've never heard a referral like this: "He's a good loan officer, but I can't stand him. Here, use him." Most agents and mortgage brokers who refer business to each other actually like each other. The main reason I find they like each other is because they bend over backward to get the job done.
Tax Breaks for Home Sales Can Be Tricky to Compute
Washington Post, January 21, 2006
By Benny L. Kass
It used to be that home sellers who wanted to legally avoid some federal taxes had to master such arcane concepts as "rollovers" and the "once-in-a-lifetime tax exclusion."
But since 1997, when the tax treatment of home sales was changed, it has been a lot simpler: Many homeowners can exclude from taxation up to $250,000 of home sale profit, $500,000 if they are married and file tax returns jointly. There are no age limits or restrictions on the number of times the exclusion can be used.
It's still not completely straightforward. There are important conditions:
· The exclusion is generally applicable just once every two years.
· You must have owned and used the home as your principal residence for two out of five years before the house is sold. If you are married, the exclusion of gain applies if either spouse meets this requirement. Marital status is determined on the date the house is sold. In the event of a divorce in which one spouse is given ownership pursuant to a divorce decree or separation agreement, the use requirements will include any time that the nonresident former spouse owned the property before the transfer to the resident former spouse.
If you are unable to meet the two-year ownership and use requirements because of a change in employment, health reasons or unforeseen circumstances (as defined by the Internal Revenue Service), your exclusion is prorated.
The prorating can be complex and has caused considerable confusion among lawyers, taxpayers and even the IRS. The new regulations were finally implemented by the IRS in 2004. They provide what the IRS calls "safe harbors": If you fall into a safe harbor category, you are assumed to be entitled to the partial exclusion. If you are not within the safe harbor, "the taxpayer may be eligible to claim a reduced maximum exclusion if the taxpayer establishes, based on the facts and circumstances, that the taxpayer's primary reason for the sale . . . is a change in place of employment, health or unforeseen circumstances."
In other words, if you are not within a safe harbor, you will have to convince the IRS that you nevertheless qualify for the partial exemption.
Let's look at these items more closely:
· Change in employment. If you have to travel at least 50 miles farther from the house you sold because of a job transfer or to take a new job, and the primary purpose of selling your house was because of employment reasons, you will be eligible for the partial exclusion.
The 50-mile distance is the IRS "safe harbor," provided that the change in place of employment occurred while the taxpayer owned and used the home. However, even if you cannot meet the safe harbor, you still may be able to convince the IRS to allow the partial exemption based on "facts and circumstances." The regulations include an example of a doctor who sold her condominium and moved 46 miles away. Because the primary reason for the sale was to allow the doctor quicker access to the hospital for emergency purposes, the IRS would allow the partial exemption based on the facts of the case.
· Reasons of health. Once again, we see the concept of "primary purpose." To qualify for the partial exemption, the primary purpose of selling the house must be based on health.
The safe harbor here is easy: If the taxpayer's physician recommends a change of residence for reasons of health, the taxpayer will automatically qualify for the partial exclusion. Health is rather broadly defined to include "the diagnosis, cure, mitigation or treatment of disease, illness or injury."
But the IRS issues a precautionary note: A sale "that is merely beneficial to the general health or well-being of an individual is not a sale . . . by reason of health."
· Unforeseen circumstances. This is the more difficult category for which to enact regulations. At some point, all of us will face conditions which could not be anticipated, but that significantly affect our lives and our financial situations.
According to the IRS, a sale "is by reason of unforeseen circumstances if the primary reason for the sale . . . is the occurrence of an event that the taxpayer could not reasonably have anticipated before purchasing and occupying the residence."
The IRS then lists several safe harbors:
· Involuntary conversion of the residence. For example, it was condemned by a governmental agency.
· Natural or man-made disasters or acts or war or terrorism resulting in a casualty to the residence. Clearly, the victims of Hurricane Katrina who lost their houses would fall squarely in this category.
· Death of one of the owners of the property.
· Cessation of employment as a result of which the taxpayer is eligible for unemployment compensation.
· Change in employment or self-employment status that results in the taxpayer's inability to pay housing costs and reasonable basic living expenses.
· Divorce or legal separation under a court decree.
· Multiple births resulting from the same pregnancy.
If you qualify under one of those safe harbors -- and have owned and used your house in the time since it was purchased -- you will be entitled to take the partial exclusion of gain.
But, once again, even if you cannot claim a safe harbor, you still may be able to convince the IRS that there are facts and circumstances that forced you to sell your house before the two years were up. The burden will be on you, and as we all know, dealing with the IRS is not easy.
If you are eligible for the partial exclusion, either because you meet the safe harbor tests or the facts and circumstances test, it is equal to the number of days of use times the quotient of $500,000 divided by 730 days. (Note that 730 days is two full years.) This works out to be an exclusion prorated by the number of days you lived in the house -- that is, if you lived there one full year and are married filing jointly, you could exclude up to $250,000. (If you are single or do not file a joint tax return change the $500,000 quotient to $250,000.)
The law applies to all principal residences: single-family houses, cooperative apartments and condominium units. If your boat or mobile home is your principal residence, the exclusion also applies.
The $250,000/$500,000 exclusions are a major tax break for homeowners. But that may not mean that you can forget completely about the old rollover tax rules.
Real estate values in the Washington area have appreciated significantly over the past half century. Many homeowners bought and sold to move into bigger homes. The profit that was made on each sale was deferred under the old rollover concept. Now, when you sell your house, you can exclude up to $500,000 of the profit -- but what exactly is your profit? It depends on those long-ago home sales.
Let us take this example: In 1968, you purchased your first house for $40,000. In 1975, you sold it for $150,000, and purchased a new house for $210,000. (For this example, we will ignore such items as home improvements and real estate commissions, although these are expenses that should be taken into consideration in determining your profit.) Because you deferred $110,000 of profit ($150,000 minus $40,000), the basis in your new home is $100,000. You determine your basis by subtracting the profit from the purchase price ($210,000 minus $110,000).
In 1989, you sold your home for $400,000 and purchased a new house for $500,000. Because the rollover was still the law, you deferred profit of $300,000 ($400,000 minus $100,000). The tax basis of your new $500,000 home is only $200,000. Thus, if you sell that house for more than $700,000, you would owe capital gains tax, because your cumulative profit over the years has been more than $500,000.
If you plan to sell your house, you must calculate and be aware of your basis. You could have a lot more profit than you think. You may want professional assistance to help you figure this out before you sell.
It is critical that you keep all of your records and all of your settlement sheets. Such expenses as home improvements, real estate commissions, repair costs, legal and title costs, will reduce your profit -- and thus reduce your tax. If you are ever audited by the IRS, you will be required to produce proof of such expenses.
Next Saturday: The like-kind or Starker exchange.
By Benny L. Kass
It used to be that home sellers who wanted to legally avoid some federal taxes had to master such arcane concepts as "rollovers" and the "once-in-a-lifetime tax exclusion."
But since 1997, when the tax treatment of home sales was changed, it has been a lot simpler: Many homeowners can exclude from taxation up to $250,000 of home sale profit, $500,000 if they are married and file tax returns jointly. There are no age limits or restrictions on the number of times the exclusion can be used.
It's still not completely straightforward. There are important conditions:
· The exclusion is generally applicable just once every two years.
· You must have owned and used the home as your principal residence for two out of five years before the house is sold. If you are married, the exclusion of gain applies if either spouse meets this requirement. Marital status is determined on the date the house is sold. In the event of a divorce in which one spouse is given ownership pursuant to a divorce decree or separation agreement, the use requirements will include any time that the nonresident former spouse owned the property before the transfer to the resident former spouse.
If you are unable to meet the two-year ownership and use requirements because of a change in employment, health reasons or unforeseen circumstances (as defined by the Internal Revenue Service), your exclusion is prorated.
The prorating can be complex and has caused considerable confusion among lawyers, taxpayers and even the IRS. The new regulations were finally implemented by the IRS in 2004. They provide what the IRS calls "safe harbors": If you fall into a safe harbor category, you are assumed to be entitled to the partial exclusion. If you are not within the safe harbor, "the taxpayer may be eligible to claim a reduced maximum exclusion if the taxpayer establishes, based on the facts and circumstances, that the taxpayer's primary reason for the sale . . . is a change in place of employment, health or unforeseen circumstances."
In other words, if you are not within a safe harbor, you will have to convince the IRS that you nevertheless qualify for the partial exemption.
Let's look at these items more closely:
· Change in employment. If you have to travel at least 50 miles farther from the house you sold because of a job transfer or to take a new job, and the primary purpose of selling your house was because of employment reasons, you will be eligible for the partial exclusion.
The 50-mile distance is the IRS "safe harbor," provided that the change in place of employment occurred while the taxpayer owned and used the home. However, even if you cannot meet the safe harbor, you still may be able to convince the IRS to allow the partial exemption based on "facts and circumstances." The regulations include an example of a doctor who sold her condominium and moved 46 miles away. Because the primary reason for the sale was to allow the doctor quicker access to the hospital for emergency purposes, the IRS would allow the partial exemption based on the facts of the case.
· Reasons of health. Once again, we see the concept of "primary purpose." To qualify for the partial exemption, the primary purpose of selling the house must be based on health.
The safe harbor here is easy: If the taxpayer's physician recommends a change of residence for reasons of health, the taxpayer will automatically qualify for the partial exclusion. Health is rather broadly defined to include "the diagnosis, cure, mitigation or treatment of disease, illness or injury."
But the IRS issues a precautionary note: A sale "that is merely beneficial to the general health or well-being of an individual is not a sale . . . by reason of health."
· Unforeseen circumstances. This is the more difficult category for which to enact regulations. At some point, all of us will face conditions which could not be anticipated, but that significantly affect our lives and our financial situations.
According to the IRS, a sale "is by reason of unforeseen circumstances if the primary reason for the sale . . . is the occurrence of an event that the taxpayer could not reasonably have anticipated before purchasing and occupying the residence."
The IRS then lists several safe harbors:
· Involuntary conversion of the residence. For example, it was condemned by a governmental agency.
· Natural or man-made disasters or acts or war or terrorism resulting in a casualty to the residence. Clearly, the victims of Hurricane Katrina who lost their houses would fall squarely in this category.
· Death of one of the owners of the property.
· Cessation of employment as a result of which the taxpayer is eligible for unemployment compensation.
· Change in employment or self-employment status that results in the taxpayer's inability to pay housing costs and reasonable basic living expenses.
· Divorce or legal separation under a court decree.
· Multiple births resulting from the same pregnancy.
If you qualify under one of those safe harbors -- and have owned and used your house in the time since it was purchased -- you will be entitled to take the partial exclusion of gain.
But, once again, even if you cannot claim a safe harbor, you still may be able to convince the IRS that there are facts and circumstances that forced you to sell your house before the two years were up. The burden will be on you, and as we all know, dealing with the IRS is not easy.
If you are eligible for the partial exclusion, either because you meet the safe harbor tests or the facts and circumstances test, it is equal to the number of days of use times the quotient of $500,000 divided by 730 days. (Note that 730 days is two full years.) This works out to be an exclusion prorated by the number of days you lived in the house -- that is, if you lived there one full year and are married filing jointly, you could exclude up to $250,000. (If you are single or do not file a joint tax return change the $500,000 quotient to $250,000.)
The law applies to all principal residences: single-family houses, cooperative apartments and condominium units. If your boat or mobile home is your principal residence, the exclusion also applies.
The $250,000/$500,000 exclusions are a major tax break for homeowners. But that may not mean that you can forget completely about the old rollover tax rules.
Real estate values in the Washington area have appreciated significantly over the past half century. Many homeowners bought and sold to move into bigger homes. The profit that was made on each sale was deferred under the old rollover concept. Now, when you sell your house, you can exclude up to $500,000 of the profit -- but what exactly is your profit? It depends on those long-ago home sales.
Let us take this example: In 1968, you purchased your first house for $40,000. In 1975, you sold it for $150,000, and purchased a new house for $210,000. (For this example, we will ignore such items as home improvements and real estate commissions, although these are expenses that should be taken into consideration in determining your profit.) Because you deferred $110,000 of profit ($150,000 minus $40,000), the basis in your new home is $100,000. You determine your basis by subtracting the profit from the purchase price ($210,000 minus $110,000).
In 1989, you sold your home for $400,000 and purchased a new house for $500,000. Because the rollover was still the law, you deferred profit of $300,000 ($400,000 minus $100,000). The tax basis of your new $500,000 home is only $200,000. Thus, if you sell that house for more than $700,000, you would owe capital gains tax, because your cumulative profit over the years has been more than $500,000.
If you plan to sell your house, you must calculate and be aware of your basis. You could have a lot more profit than you think. You may want professional assistance to help you figure this out before you sell.
It is critical that you keep all of your records and all of your settlement sheets. Such expenses as home improvements, real estate commissions, repair costs, legal and title costs, will reduce your profit -- and thus reduce your tax. If you are ever audited by the IRS, you will be required to produce proof of such expenses.
Next Saturday: The like-kind or Starker exchange.
Interest and Points Create Potent Tax Breaks for Homeowners
Washngton Post, January 14, 2006
By Benny L. Kass
Among the biggest tax breaks available to U.S. homeowners is the deductibility of mortgage interest and points. Here's a review of these money-savers.
Mortgage Interest
Interest on mortgage loans on a first or second home is fully deductible, subject to the following limitations: acquisition loans up to $1 million, and home equity loans up to $100,000. If you are married but file separately, the limits are split in half.
Lenders who receive interest payments of $600 or more from a borrower in any one calendar year must file an information return with the Internal Revenue Service stating the amount of interest received. A copy of this return, Form 1098, must also be sent to the person who paid the interest.
During the month of January, homeowners will receive this form. For taxpayers who itemize, it's a big help in filling out the forms needed to take the appropriate mortgage interest deduction.
To be eligible for the tax deduction, the debt must be secured. This means that there must be a deed of trust that is recorded among land records against your house. If the loan is not secured, you cannot deduct the interest you pay.
I often run across this situation: Parents want to help their children purchase a house and lend them the down payment. The children are required to repay the loan over a period of years, with interest. If the parents will secure the loan (i.e., record the legal document), the children can deduct the mortgage interest. Otherwise, the payments are considered personal interest, which cannot be claimed as a deduction under current law.
Points
Lenders have different terms for points, such as loan discounts or origination fees. But no matter the name, points are money the borrower must pay. Lenders can charge as many points as they can get away with, but at some level, the loan becomes usurious, potentially illegal, and may represent what is commonly known as loan sharking.
Lenders take risks. They lend money to a stranger, who may or may not be able to repay the loan in full. To secure repayment of the loan, the lender requires the borrower to sign a deed of trust (the mortgage document) whereby the house is put up as collateral (security) to guarantee full payment of the loan. Those of us who can remember back to the early 1990s know that houses can decrease in value, which makes the lender's security potentially more risky.
The higher the risk, the higher the mortgage interest will be; the higher the risk, the more points a lender will want to charge.
Points paid to obtain a new mortgage are fully deductible in the year they are paid by the borrower. It used to be that the IRS required the borrower to write a separate check to the lender for these points; in recent years, the IRS seems to have backed off this position. However, it still makes sense either to write a separate check at closing or at least to have the settlement statement (the HUD-1) clearly reflect the number and amount of points you are paying.
If you pay points to obtain a refinance loan, in most circumstances those points can not be deducted in full for the year they are paid. Rather, the IRS requires that you allocate the points by the number of years of your mortgage loan.
For example, you refinance and obtain a loan in the amount of $250,000. To get this new loan, you are required to pay two points, or $5,000. If your loan is for 30 years, you can deduct one-thirtieth of the points each year, or $166.67. However, if you pay off this loan early, either by selling your house or refinancing again, the balance of the unallocated (nondeducted) points can then be deducted on your income tax return for that year.
Talk to your potential lenders about trading interest rates for points. Generally speaking, each point that you pay is the equivalent of one-eighth of a percentage point in interest. Thus, you may be able to get a loan at 6 1/8 percent with no points, but a 6 percent rate by paying one point.
Seller-Paid Points
Often, a potential buyer presents a sales contract to a seller, and asks the seller to help financially in some way to seal the deal. Such concessions can include the seller paying some or all of the buyer's closing costs, the seller giving a cash credit at settlement or the seller paying some or all of the buyer's points.
For many years, the Internal Revenue Service prohibited buyers from deducting seller-paid points. In a complete about-face, however, in 1994 the IRS ruled that purchasers could generally deduct points required by mortgage lenders, even if those points were paid by the seller.
Say you will pay $300,000 for your new house and obtain a loan of $250,000. The lender can give you lower interest if you pay two points, or $5,000. If you can convince your seller to pay this -- and have your sales contract reflect that the seller is paying this money as points -- you should be able to fully deduct this $5,000 from your income tax that you file for the year of the purchase.
The HUD-1 settlement sheet should also reflect that the seller paid the points. This document is perhaps the most important piece of paper you receive at settlement. Keep it forever, because it will be your best proof if you are ever challenged by the IRS.
There is one drawback to the deductibility of seller-paid points. The amount will be used to reduce the purchaser's basis price if those points are deducted. In our example, if the purchaser paid $300,000 for the property and deducts the $5,000 of seller-paid points, the cost basis to the purchaser is reduced to $295,000. This comes into play when determining tax liability after a house is sold. However, current tax law allows generous tax breaks when a house is sold.
Next Saturday: Tax treatment of profit from home sales.
By Benny L. Kass
Among the biggest tax breaks available to U.S. homeowners is the deductibility of mortgage interest and points. Here's a review of these money-savers.
Mortgage Interest
Interest on mortgage loans on a first or second home is fully deductible, subject to the following limitations: acquisition loans up to $1 million, and home equity loans up to $100,000. If you are married but file separately, the limits are split in half.
Lenders who receive interest payments of $600 or more from a borrower in any one calendar year must file an information return with the Internal Revenue Service stating the amount of interest received. A copy of this return, Form 1098, must also be sent to the person who paid the interest.
During the month of January, homeowners will receive this form. For taxpayers who itemize, it's a big help in filling out the forms needed to take the appropriate mortgage interest deduction.
To be eligible for the tax deduction, the debt must be secured. This means that there must be a deed of trust that is recorded among land records against your house. If the loan is not secured, you cannot deduct the interest you pay.
I often run across this situation: Parents want to help their children purchase a house and lend them the down payment. The children are required to repay the loan over a period of years, with interest. If the parents will secure the loan (i.e., record the legal document), the children can deduct the mortgage interest. Otherwise, the payments are considered personal interest, which cannot be claimed as a deduction under current law.
Points
Lenders have different terms for points, such as loan discounts or origination fees. But no matter the name, points are money the borrower must pay. Lenders can charge as many points as they can get away with, but at some level, the loan becomes usurious, potentially illegal, and may represent what is commonly known as loan sharking.
Lenders take risks. They lend money to a stranger, who may or may not be able to repay the loan in full. To secure repayment of the loan, the lender requires the borrower to sign a deed of trust (the mortgage document) whereby the house is put up as collateral (security) to guarantee full payment of the loan. Those of us who can remember back to the early 1990s know that houses can decrease in value, which makes the lender's security potentially more risky.
The higher the risk, the higher the mortgage interest will be; the higher the risk, the more points a lender will want to charge.
Points paid to obtain a new mortgage are fully deductible in the year they are paid by the borrower. It used to be that the IRS required the borrower to write a separate check to the lender for these points; in recent years, the IRS seems to have backed off this position. However, it still makes sense either to write a separate check at closing or at least to have the settlement statement (the HUD-1) clearly reflect the number and amount of points you are paying.
If you pay points to obtain a refinance loan, in most circumstances those points can not be deducted in full for the year they are paid. Rather, the IRS requires that you allocate the points by the number of years of your mortgage loan.
For example, you refinance and obtain a loan in the amount of $250,000. To get this new loan, you are required to pay two points, or $5,000. If your loan is for 30 years, you can deduct one-thirtieth of the points each year, or $166.67. However, if you pay off this loan early, either by selling your house or refinancing again, the balance of the unallocated (nondeducted) points can then be deducted on your income tax return for that year.
Talk to your potential lenders about trading interest rates for points. Generally speaking, each point that you pay is the equivalent of one-eighth of a percentage point in interest. Thus, you may be able to get a loan at 6 1/8 percent with no points, but a 6 percent rate by paying one point.
Seller-Paid Points
Often, a potential buyer presents a sales contract to a seller, and asks the seller to help financially in some way to seal the deal. Such concessions can include the seller paying some or all of the buyer's closing costs, the seller giving a cash credit at settlement or the seller paying some or all of the buyer's points.
For many years, the Internal Revenue Service prohibited buyers from deducting seller-paid points. In a complete about-face, however, in 1994 the IRS ruled that purchasers could generally deduct points required by mortgage lenders, even if those points were paid by the seller.
Say you will pay $300,000 for your new house and obtain a loan of $250,000. The lender can give you lower interest if you pay two points, or $5,000. If you can convince your seller to pay this -- and have your sales contract reflect that the seller is paying this money as points -- you should be able to fully deduct this $5,000 from your income tax that you file for the year of the purchase.
The HUD-1 settlement sheet should also reflect that the seller paid the points. This document is perhaps the most important piece of paper you receive at settlement. Keep it forever, because it will be your best proof if you are ever challenged by the IRS.
There is one drawback to the deductibility of seller-paid points. The amount will be used to reduce the purchaser's basis price if those points are deducted. In our example, if the purchaser paid $300,000 for the property and deducts the $5,000 of seller-paid points, the cost basis to the purchaser is reduced to $295,000. This comes into play when determining tax liability after a house is sold. However, current tax law allows generous tax breaks when a house is sold.
Next Saturday: Tax treatment of profit from home sales.
Area Condo Sales Cooling After Record-Setting Year
Rise in Supply Gives Buyers a Break
Washington Post, January 7, 2006, p. A1
By Kirstin Downey
Sales of new condominiums reached record levels in the Washington area in 2005, according to a new report, but the supply of new condos has begun to outstrip demand.
That means that would-be condo buyers have many more choices than they had only months ago, according to local real estate agents. Melissa Chen, a real estate agent with District-based Evers & Co., said shoppers are touring as many as 40 units now before choosing, enjoying the luxury of time to consider their options. That's a big change from when there were only a handful of properties available and buyers had to snap them up with little time for reflection, she said.
In 2005, 13,698 new condo units were sold in the area, up from 9,108 in 2004, according to the new report from Delta Associates, an Alexandria-based real estate information firm. Sales were particularly brisk in the fourth quarter of 2005, when 3,541 new condos were sold -- a record, according to the report -- up from 2,394 in the comparable quarter in 2004.
But far more units are being readied for the market, either in new projects or conversions from rental apartments. About 51,400 units were being planned or marketed for delivery within the next three years, Delta Associates found, up from 39,000 three months earlier. It appears some builders are proceeding with projects they have spent years developing, even as the supply of new units rises, in hopes their projects will be more successful than the competition.
"Even with sales at record highs, there is so much product being delivered that the market has a different feel to it," said Gregory H. Leisch, chief executive of Delta Associates.
Leisch said many condo developers are proceeding because they must financially. "They paid so much for the land, and they are so far down the development timetable, they are so far committed, that, practically speaking, they can't stop," he said.
"I think without question the condo market will continue to soften," said Kenneth Wenhold, Virginia and Maryland director for MetroStudy, a Houston-based real estate research firm that specializes in the new-home market. Wenhold said there are five times as many condo units for sale as there were a year ago.
During the housing boom of the past five years, the Washington area market has been among the nation's hottest, with the market for condos particularly superheated.
Condominiums, a form of dense, multi-family housing in which you own your own unit and a share of common areas, generally represent a lower-priced housing option. As single-family dwellings became very expensive during the boom, condos were especially attractive, even in suburban areas. And they were particularly popular with investors.
While the inventory of all housing for sale in the Washington area has risen over the past few months, the change in the formerly hot condo sector has been the most marked.
When the condo market was at its peak a year or so ago, investors flocked to buy units before construction with the intention of flipping them for a profit. Wenhold said he has heard that some of those investors are deciding not to go through with their purchases, giving up their down payments, to avoid being left holding units they cannot sell.
"Contracts are falling through because people are walking away from the closing table," he said. "It's a rare occurrence, but the fact it is happening at all is throwing up red flags."
Wenhold said some builders are likely to be unable to sell out their projects, and he speculated that some will end up in foreclosure.
To help sales, condo developers are offering incentives, such as waiving condo fees for a time or helping with closing costs, Delta Associates found. Some builders are cutting prices as much as $30,000.
"Concessions eat into the bottom line for developers, but have become necessary in some cases to help units move quicker," the study found.
Much of the growth is coming in suburban Maryland, where several new projects are underway in Prince George's County. In the next three years, about 17,400 units will be built in suburban Maryland or converted from rentals into condominiums, by Delta's count. In Hyattsville, for example, Federal Capital Partners is converting a 210-unit mid-rise building into a condominium.
The pace of new condominium development is slowing somewhat in Northern Virginia, although it makes up the biggest share of the region's condo market, with about 24,000 units being readied for sale within the next three years, according to Delta Associates. About 9,900 units are being built or marketed in the District.
Washington Post, January 7, 2006, p. A1
By Kirstin Downey
Sales of new condominiums reached record levels in the Washington area in 2005, according to a new report, but the supply of new condos has begun to outstrip demand.
That means that would-be condo buyers have many more choices than they had only months ago, according to local real estate agents. Melissa Chen, a real estate agent with District-based Evers & Co., said shoppers are touring as many as 40 units now before choosing, enjoying the luxury of time to consider their options. That's a big change from when there were only a handful of properties available and buyers had to snap them up with little time for reflection, she said.
In 2005, 13,698 new condo units were sold in the area, up from 9,108 in 2004, according to the new report from Delta Associates, an Alexandria-based real estate information firm. Sales were particularly brisk in the fourth quarter of 2005, when 3,541 new condos were sold -- a record, according to the report -- up from 2,394 in the comparable quarter in 2004.
But far more units are being readied for the market, either in new projects or conversions from rental apartments. About 51,400 units were being planned or marketed for delivery within the next three years, Delta Associates found, up from 39,000 three months earlier. It appears some builders are proceeding with projects they have spent years developing, even as the supply of new units rises, in hopes their projects will be more successful than the competition.
"Even with sales at record highs, there is so much product being delivered that the market has a different feel to it," said Gregory H. Leisch, chief executive of Delta Associates.
Leisch said many condo developers are proceeding because they must financially. "They paid so much for the land, and they are so far down the development timetable, they are so far committed, that, practically speaking, they can't stop," he said.
"I think without question the condo market will continue to soften," said Kenneth Wenhold, Virginia and Maryland director for MetroStudy, a Houston-based real estate research firm that specializes in the new-home market. Wenhold said there are five times as many condo units for sale as there were a year ago.
During the housing boom of the past five years, the Washington area market has been among the nation's hottest, with the market for condos particularly superheated.
Condominiums, a form of dense, multi-family housing in which you own your own unit and a share of common areas, generally represent a lower-priced housing option. As single-family dwellings became very expensive during the boom, condos were especially attractive, even in suburban areas. And they were particularly popular with investors.
While the inventory of all housing for sale in the Washington area has risen over the past few months, the change in the formerly hot condo sector has been the most marked.
When the condo market was at its peak a year or so ago, investors flocked to buy units before construction with the intention of flipping them for a profit. Wenhold said he has heard that some of those investors are deciding not to go through with their purchases, giving up their down payments, to avoid being left holding units they cannot sell.
"Contracts are falling through because people are walking away from the closing table," he said. "It's a rare occurrence, but the fact it is happening at all is throwing up red flags."
Wenhold said some builders are likely to be unable to sell out their projects, and he speculated that some will end up in foreclosure.
To help sales, condo developers are offering incentives, such as waiving condo fees for a time or helping with closing costs, Delta Associates found. Some builders are cutting prices as much as $30,000.
"Concessions eat into the bottom line for developers, but have become necessary in some cases to help units move quicker," the study found.
Much of the growth is coming in suburban Maryland, where several new projects are underway in Prince George's County. In the next three years, about 17,400 units will be built in suburban Maryland or converted from rentals into condominiums, by Delta's count. In Hyattsville, for example, Federal Capital Partners is converting a 210-unit mid-rise building into a condominium.
The pace of new condominium development is slowing somewhat in Northern Virginia, although it makes up the biggest share of the region's condo market, with about 24,000 units being readied for sale within the next three years, according to Delta Associates. About 9,900 units are being built or marketed in the District.
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