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.
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