How Long To Get Your Equity Back

There are a lot of homeowners locally who are deeply underwater on their mortgages. They owe more to the bank than what they could reasonably expect to sell their home for in this market. In my mind, this is the deep unresolved issue in our current housing market. I think this is a larger issue than foreclosures, long term.

The Washington Post did an article on the picture nationally. They're predicting that some markets may take a decade or more to regain the equity they had at the top of the market. And, they say some places may never see those values again.

I was particularly struck by this line in a paragraph about parts of Florida

There are going to be parts of Florida where homes shouldn't have been built [and]...that should have stayed farm land.

You could certainly say the same thing about parts of Culpeper and Fauquier county, not to mention places even further from DC and the Northern VA jobs.

The Joke That is HAFA

This was not the blog post I intended to write today but I just couldn't help myself.

I looked at the HAFA guidelines when they came out and after a quick review laughed ruefully and knew I'd never need to worry about them.

But Sarah Stelmok took the time to detail the problems with the program and whether you're a homeowner who might do a short sale or a real estate agent who works with them every day, you need to read this!

You may want to read parts 1 and 2 as well laying out the details of the program. Personally, I think part 3 tells you everything you need to know!

To Stay or Walk Away

NPR's Morning Edition today carried a story of a family in Arizona and their struggle to save their home.

They've successfully gotten a loan modification through HAMP. However, the home that they owe $300,000 is now only worth $120,000. The terms of the loan mod require an eventual balloon payment of $100,000.

The home will clearly never be worth that $300,000.

So, when this family eventually sells their home, they're now looking at a short sale. Either way, their credit is trashed.

Do they take the hit now by going into foreclosure or postpone it indefinitely?

There are no easy answers.

Government Ending Mortgage Support

It doesn't normally get the big headlines, but the Federal Reserve has been propping up the real estate market with cheap money for a couple years now.

Today's Washington Post says that's coming to an end. The Feds are going to stop keeping mortgage interest rates artificially low.

The question is, what happens next? A fixed 30 year mortgage can now be had for less than 5%. How many buyers get knocked out if that's 6%? How many if it's 7%?

Sooner or later this had to happen. The government can't and shouldn't (in my opinion) prop up this or any market forever. I hope it's done gradually and thoughtfully. And, I expect there to be some impact in fewer sales. But I don't believe interest rates will jump overnight. You'll hopefully see a gradual rise, giving people time to adjust.

The change is due to take place in two months. Does this news make you any more likely to move sooner on a home purchase in hopes of locking in lower rates? Or are you going to wait and hope that more expensive mortgages mean lower prices?

Ethics in Short Sales

Recently, five area REALTOR associations (Greater Piedmont Area Association, Dulles Area Assocation, Fredericksburg Area Assocation, Northern VA Association and Prince William Association) got together to try to find some common standards of ethics that could apply to short sales.

There are a number of areas in the short sale process where questions regarding the most ethical practice has been an issue. Some of these are how do you handle the earnest money deposit/escrow, what do we tell clients about the likely impact to their credit of a short sale vs. a foreclosure and how do we handle short sales in the Multiple Listing Service in light of our need to protect our clients' privacy.

The document the associations came up with is a good start. Short sales continue to evolve and advice you'd give a client 2 years ago is likely different than what you'd tell them today. Hopefully this document will continue to evolve as well.

No Apologies Necessary

I got a call this week from a former client about selling their home. They owe the bank more than the home is worth so this will be a short sale.

The amazing thing is that this client apologized to me for asking me to take on a short sale. Wow!

I love my clients and I love how they look out for me. It's a humbling thing.

But in this particular instance, no apology is necessary! In this market, if I didn't work on short sales, I'd have very little work! It's very rare for me to get a call to list a house that isn't a short sale. And, it's rare to work with a buyer who isn't buying either a foreclosure or a short sale.

So, please, when you call me about your short sale listing, even if it's just to pick my brain, don't apologize. If it wasn't for short sales I'd have to find something else to do for a living! (Do you remember that old song "If it weren't for bad luck I'd have no luck at all")

Think of me as Short Sales R Us!

Seriously, I'm well suited for short sales. I've been told I've got the patience of a saint and that's true. (I think it's in my genes!) Patience may well be the number one attribute any agent needs for dealing with banks in a short sale! I'm a great listener and most sellers who are going through a short sale need a good listener. And, I'm cool in a crisis, good at keeping my head when things get emotional.

So, to all the sellers who have contacted me about a short sale, thank you! And, to those of you who will call me this year, thanks to you too! Keep those phone calls coming!

2010 - A Forecast

Let's start with the look at the larger economic picture. As always, it will play a major role in what happens this year with local real estate.

While the Fed continues to keep money cheap (I closed a deal at the end of the year with interest rate under 5%) that can't last forever. If the real estate industry and economy seem to be doing well mid-year we may start to see some adjustments upwards in rates.

I expect lending to remain very, very tight. Your credit will need to be very good and/or you'll need a hefty down payment in order to buy a house this year. Because of these conditions, I expect to see more USDA Rural Development mortgages in 2010.

The jobs picture is likely to remain gloomy throughout 2010. It will be less gloomy in the greater DC area, but the angst that goes with those high unemployment numbers will remain and will continue to impact people's willingness to buy homes.

The majority of sales are likely to be short sales in 2010. There are plans in the works to make the short sale process easier and faster. I have my fingers crossed that they will work!

It's going to surprise a lot of you to hear that one of my biggest worries about 2010 is a lack of inventory! Who'd have guessed a year or two ago that that would be possible!

But Prince William County is down to only 4.5 months of inventory. That's technically a strong seller's market. Culpeper is at 7 months of inventory, a balanced market. Fauquier is at 9 months. Rappahannock has what looks like an astonishing 16 months of inventory, but things continue to work a little differently there! I expect inventory in Prince William County to stay about at current levels in 2010. Culpeper and Fauquier are likely to shrink further. Rappahannock should be down to 12 months of inventory by the end of the year.

Here's the problem with the inventory situation. Banks have additional inventory, but they're holding on to it and releasing it more slowly. They don't want any further depression of prices because that kills their bottom line. And, with the bailout from the government and the cheap money they're able to borrow from the Fed, they don't need to dump them in a hurry. So, we'll continue to see foreclosures hit the market but only in dribs and drabs.

That leaves the rest of us homeowners as potential sellers. Most homeowners have seen a tremendous amount of value wiped out on paper and aren't anxious to realize that loss by selling and locking it in. I can't say as I blame them. Of course, the underlying assumption there is that if I hold on another year, or maybe two, I'll get a lot of that value back.

Is that true? Will 2010 be the year we see a spike in home prices? We've certainly already seen some price increases in Fauquier and Prince William counties. Culpeper still shows a year over year decrease as does Rappahannock county. But yes, I think we'll see small price increases in all four counties in 2010. Just don't expect to get back to 2005 prices for a long, long time! Expect 5-8% price increases this year.

The big unknown this year in my mind is what the buyers will do. If the economy, and by economy I mean unemployment, improves significantly, I think we see a big increase of buyers and those price increases could get a lot larger. But I'm not optimistic about the jobs outlook. And, I think buyers remain relatively scarce. Look for the volume of transactions to be flat in 2010. And it wouldn't surprise me if there's actually a small decline.

I expect the DOM (Days on Market) for properties to shrink slightly simply because of the lack of inventory. Those homes priced right and in great condition will continue to sell relatively quickly.

The summary is that 2010 is going to be another year of trying to get solid ground underneath the real estate market. It will be another year of slow, painful climbing out of the ugly market we've had. There are bright spots and there's certainly the potential for happy surprises. But I'd hang on for another bumpy ride if I were you!

Rough Times in Real Estate

Most of the pain of real estate practitioners in this market is hidden away. Most of us don't talk much about the realities of doing this for a living in the worst economy in my lifetime. It's not just your average consumer losing their home to foreclosure.

But sometimes there's an amazing, honest, articulate agent with a story to tell. Matt Stigliano has a story worth listening to.

(How am I doing? Better than 2008! Not as good as a few years ago!)

Cash Wins Bidding Wars

Sunday's Washington Post had an article on how cash rich investors are the bane of first time home buyers.

The example they use is in Prince William County but it's happening throughout the region.

Cash is kind, there's very limited inventory and deals with mortgages often fall through.

If you were a seller, what would you do?

2009 Year in Review

As we head into 2010, let's start by looking backwards into 2009 and see how my predictions fared.

First of all, it's clear to me now that years from now we'll look back and see 2009 as the year when the real estate recovery really began to take hold, at least in this part of Virginia. That doesn't mean that the prospects are entirely rosy going forward, but the contrast between 2008 and 2009 are simply incredible.

Whereas the big story in 2008 was price drops, the big story this year is price increases, year over year, across the board. Whether you're talking about Culpeper, Fauquier, Prince William or Rappahannock County, prices are up year over year. Now bear in mind that's after several years of steep declines. And these increases are very modest, in the single digits. On prices, I was too pessimistic, anticipating another year of falling prices. I've never been so happy to be wrong! I predicted a price decline of 10% with that primarily coming on properties at the $400K and above price point. In reality, the only place we saw any price weakness was at the very high end of the market.

Inventory declined dramatically. I got this one partially right in that I predicted a continued decline. But it's been more rapid than I expected. Inventory in Culpeper is down 20% year over year and we're now at 11 months of inventory. Still a buyer's market there but better than a year ago.

In Fauquier County the decline was 21% but we're down to only 8 months of inventory. And in both counties, quality inventory at the lower price points is scarce and snapped up quickly.

Prince William County had an amazing decline of 37% in year over year inventory! We're now looking at only about 4 months of inventory here and it's clearly a seller's market in every way except price. But we'll get to that.

In Rappahannock County, after an unexpected inventory surge late in the year, we've started falling again. The November numbers show us pretty much flat, year over year. But preliminary December numbers show a December drop off. Some of that will be sellers deciding not to bother having their homes on the market over the holidays. But some of that inventory will not be coming back.

And now for the volumes. This is the area where I was probably the most off. I predicted 640 homes would sell in Culpeper in 2009. In fact, even with the tax incentives that number was only 595, the exact same number as in 2008.

In Fauquier I predicted that 645 homes would sell in 2009. I was conservative there, with 675 selling a significant increase from the 600 in 2008.

Prince William made me look especially inept, with only 7825 sales as opposed to my forecast of 8800. In my defense, the miserably small inventory kept a lot of would-be buyers on the sideline. That 7825 is actually a decrease over the roughly 8000 sold in 2008. It's a troubling trend.

All in all, my performance as a prognosticator was mixed. I was too optimistic in some areas, not optimistic enough in others and got it just about right in a few.

Despite my lack of perfection, I'll risk looking foolish again later this week with my 2010 predictions!

Wells Fargo - Great! BOA - Lousy!

I've always been a huge Jim Collins fan. So a recent Agent Genius blog post caught my eye.

Wells Fargo was picked by Jim as an example of great in the banking arena. Bank of America/Countrywide - not so much.

Read the blog post to find out how that's still true today, in reference to short sales.

New Green House Built in VA

We're seeing more and more green construction all the time in our area. Sometimes that's a remodeling job using sustainable materials. Sometimes, as in this house in Powhatan, it's a completely new home, built from scratch. This one is LEED certifed and looks like it's a beautiful home.

In case you're wondering about SIPs referred to in this article, they're Structural Insulated Panels. They provide about 40% more insulation than you get in a normal home.

This home was also written up in the Richmond Times Dispatch.

Short Sale Help - HAFA

As you may have heard by now, the Federal Government has come up with guidelines that are designed to simplify the process of short sales.

Simplify may seem an odd choice of words given that the document explaining this program is 43 pages!

You can read all about HAFA for yourself. But if you're not inclined to dig into those 43 pages, here's a short version.

HAFA will provide incentives to lenders to make the short sale process easier. The steps the lenders are asked to take include:

• Approve short sale terms prior to listing.
• Standardize processes, documents and timeframes.
• Requires borrowers must be fully released from all future liability.
• Prohibits servicers or lenders from intervening to ask for real estate commission reductions.
• Allows use of data already collected in the course of examining eligibility for loan modification.

In return, servicers and lenders get financial incentives:

• $1500 for borrower relocation assistance
• $1000 for servicers to cover processing costs
• $1000 for investors for allowing up to $3000 in short sale proceeds to be distributed to subordinate lien holders.

The program begins April 5th, 2010.

I can't tell you if this program will work. I imagine there will be successes, but my hunch is that the number is small. Once again, this is a voluntary program. Lenders overall haven't shown much inclination to jump into anything that's voluntary and that isn't favorable to their bottom line. If this program is different, I haven't yet seen why.

Still, I applaud any effort by anyone to make the short sale process less painful. Short sales seem likely to be a large percentage of transactions for the foreseeable future. Or, you could see more homeowners decide it isn't worth the hassle and just walk away.

Clearly there's an incentive for everyone to fix this process!

Kojo Show Does Real Estate

I don't know of another local radio or TV personality who does a better job of keeping people informed about the local real estate market than Kojo Nnamdi on WAMU. He's had two shows in the last week that illustrate that point.

First he did a show on townhouses and rowhouses that was very interesting. Part of what I like about what Kojo does is that he does the big picture stuff. This piece looks about this important piece of the urban housing picture.

More recently he did a piece on the home buyer's tax credit. It's a more complex subject than most media reports would indicate and it's great that people have another place to go and ask questions. Some of the questions are as informative as the answers in helping me gauge how much people know and understand about the subject.

Take the time to listen to these shows. If you're not a regular listener to Kojo's show, you may become a fan!

Newsweek Wants You to Buy a House

Don't blame me for the headline, but Newsweek says:

If You Don't Buy a House Now, You're Stupid or Broke

The headline is a bit of hyperbole. Lots of us who aren't buying now are neither stupid nor broke!

However, he's got a good, detailed analysis of what the lower interest rates will likely save you on your mortgage. And, I believe he's right about interest rates rising, probably as early as next year.

As always, the decision to buy a house is about you and your family and what's right for you right now. But this is worth thinking about!

USDA Rural Development Mortgages

We're seeing an increasing number of USDA rural development mortgages in our area.

These loans require 0 down payment and the income limits are pretty generous. For example, in Culpeper County the income limit for a family of four is about $80K. These loans are not actually made by the USDA, but are guaranteed by them and you can use any lender who participates in this program.

I will admit to having mixed feelings about these loans. Does having the agriculture department involved in mortgages really make any sense?

However, as mortgage money got increasingly tight, alternatives were clearly needed. And, this is one more way the government is helping trying to keep the real estate industry moving.

But, for a program that is supposedly focused on building up rural communities, this doesn't seem to require that the house you buy is actually in a rural area. Charlottesville, Harrisonburg, Norfolk, etc. do not qualify, in my mind as rural communities. As someone who lives in a rural community and was born and raised in one, I take exception to money designed for these communities being used in what are clearly large urban areas.

I also continue to be dismayed at 0% down payment programs. I'm not saying there's never a loan that should be made with 0% down. But "no" should be the first answer and the burden of proof otherwise should definitely be on the borrower. Can someone who can't come up with any down payment at all really come up with the money that will surely be needed for home maintenance?

And, lastly, aside from my philosophical concerns, there's the practical worry. This program is not functioning well right now. USDA is now overwhelmed with these mortgages and getting paperwork through there is taking at least 30 days, even once appraisals, inspections, underwriting, etc. are all complete. There are a lot of transactions currently in limbo because of this backlog.

I hope no one working this program at USDA is planning on any time off over the holidays!

Rappahannock Land

Since I've had several recent inquiries from both buyers and sellers about land in Rappahannock County, it seemed like a good time take a closer look at that market.

I've mentioned before that land sales are different than home sales. The prices in that market are typically less elastic. Fewer sellers of land "have" to sell.

There have been 9 land parcels sold this year in Rappahannock County. The smallest was 1.23 acres. The largest was 117.92. This does not cover family transfers of land, of which there are a considerable number in Rappahannock County.

The average price per acre is about $11,000. That tells you almost nothing, though since these nine parcels are so different. A 2 acre buildable parcel sold for about $50,000/acre. The 117 acre parcel sold for just under $10,000/acre, a steal in Rappahannock County. The two 25 acre lots, the minimum acreage required for building in Rappahannock County (unless grandfathered in) sold for $10,500 and $13,000.

Days on market ranged from 7 for a 34 acre lot in Woodville to 344 days for a 25 acre lot on North Poes in Flint Hill.

Land sales are down considerably from 2008 when 16 parcels sold. The average price per acre is down about $600. But, again, because there is such a small sampling and so much variety, the price per acre here is not particularly useful.

What I can say is that small parcels continue to sell at a premium. Lots w/septic permits, good access, good views and water all sell for more.

And, the good news is, perhaps because of the slightly lower prices, we've seen some land parcels go under contract relatively quickly.

If you've got questions about your particular parcel of land, or about land you hope to buy, just let me know!

New HUD1 Coming

Starting January 1st the HUD1 settlement statement is changing. The new HUD1 should be easier to read and also help consumers determine whether the Good Faith Estimate that they got from their lender was reasonably accurate.

Between now and January 1st, I'll cover several different aspects of the new form.

For now, here's a link to HUD's web site where you can see the form for yourself.

Take note of all the places on page 2 where you see notations such as "(from GFE #1). These will show you exactly where on the Good Faith Estimate (GFE) to look to make sure the numbers are what you anticipated.

That alone is a good reason to like this new form!

Short Sale or Foreclosure

If you're having trouble making your mortgage payments should you go the foreclosure or short sale route?

The conventional wisdom has been short sale for some time now. The thinking was that it better protects your credit making it easier for you to buy a home again in the future.

New evidence suggests that there may not be enough difference to matter.

This recent article in the North County Times does a good job of laying out the options, risks and rewards. (I'd add that renting the property is another viable option that ought to be explored.)

I've also been reading a paper by Brent T. White from the University of Arizona that argues homeowners who are significantly underwater are not acting in an economically rational fashion (read: in their own best interests) when they continue to make mortgage payments on a home that's value is way below the mortgage owed, with no recovery in sight. I agree with his analysis that the only way to explain this behavior is societal pressures/mores.

The commonly held wisdom has been that real estate professionals should be advising their clients to go the short sale route rather than foreclosure. The sole justification for this was the difference in impact to the credit score.

If this isn't true; other than the fact that the short sale is better for the individual real estate agent's bottom line, can and should anyone be advising a client to go through the long, excruciating process of a short sale?

For now, it's clearly not as black and white as we had thought. Going forward I'll be laying out what I know and advising clients to talk to an attorney to weigh their options.

While the only real reason being put forward for going the short sale route is the moral one, that doesn't hold true, apparently for lending institutions. No one argues about the moral burden that a bank must bear. No one argues that they can't foreclose because it's immoral to put families out in the street. Why is all the moral responsibility on the shoulders of the individual mortgage holder?

Smaller Houses

There's more and more data to support what I've been seeing with my clients for several years. The pool of people interested in McMansions is rapidly shrinking. Overall, homebuyers are opting for smaller, more efficient homes.

As this article in the San Francisco Chronicle says the average home size is shrinking.

From a recent Wall Street Journal article:

"More often than not, builders say, post-crash buyers of new homes want smaller and simpler. The average new single-family house peaked at 2,507 square feet in 2007 and has since slipped to 2,392 square feet, according to Census Bureau data."

I believe that trend had already started before the recession as the next generation of home buyers a more urban lifestyle w/more experiences and fewer posessions. Will that change as their kids get older, as it has with previous generations? My hunch is that there will always be families who make that choice of the large house in the further suburbs. But I see it as a shrinking demographic. I think the future of energy prices will likely reinforce the tendencies that we already see in the younger generation to forego the McMansions.

But ask me 10 years from now when this recession is a distant memory and we'll see if I'm right!