Affordable Housing Legislation

There's some good news on the affordable housing front. Or maybe I should say there's the potential for good news there in 2008.

Both the House and Senate passed legislation this year to create a National Affordable Housing Trust Fund Account. This would be a dedicated funding source for the development, preservation and rehabilitation of 1.5 million affordable homes over 10 years.

Heaven knows this area badly needs more affordable housing. Even with prices currently sinking,  housing remains unaffordable for many people given the average wages in this area. And all those new retail shops in Culpeper, Warrenton and Gainesville aren't going to help! Find me one that pays enough for their employees to qualify for a mortgage!

While both the House (HR 2895) and Senate (S 2523) have passed these bills, they are, of course, different versions. So they'll have to be reconciled in 2008. And, that's where they're likely to run into some trouble.

Right now these bills are bipartisan efforts. The Senate version, for example, was sponsored by three Republicans and three Democrats. But there are definitely those who oppose this bill, particularly for the funding mechanism, with revenues coming primarily from Fannie Mae and Freddie Mac.

So, if this is an issue that's important to you, please contact your Senators and Congressional Representative. It would be a nice gift to bring in the New Year!

2008 Predictions

It's time to go out on a limb! With the new year fast approaching, I'm going to give you my version of what to expect in 2008. I am humbled before I even begin by looking at some of the weightiest minds in the industry and how their 2007 predictions worked out. Dr. Steven Fuller is one of the most knowledgeable real estate gurus in the greater DC area. But he was way off base in his optimstic 2007 predictions. But then I remember Mark Twain's quote about economists "If you laid all the economists in the world end to end, they still couldn't reach a conclusion." So, how badly could I do?!

I'm going to start with what I see overall for our area. Then I'll single out a couple of counties for some specific comments.

First of all, I see no huge market swings in either direction. There will be relative stability, although not the kind most sellers are looking for.

Prices - In our area we'll see some additional price declines. There are two ways to look at price declines. If you look at sold prices, which is how this statistic is usually generated, the decline will be larger. That's because while a large number of homeowners have already significantly lowered their prices, those homes generally haven't sold yet. As they sell, we'll start to see that really reflected in the statistics. But a lot of that decline has already happened. There are specific neighborhoods where the word hasn't quite gotten through yet and prices will need to fall more. If you're looking to buy, make sure you ask your real estate agent about overall market statistics for that specific neighborhood.

If you look at the average list price, I don't believe you'll see huge drops. Again, much of that price cutting got done in 2007.

Volume - I expect this number to be only slightly better than 2007. Any larger influx of buyers will have to wait for greater overall economic confidence. My prediction is that we won't see much of that in 2008.

Inventory - Flat initially, a big jump in early spring, and then a gradual decline the rest of the year. I believe we'll end 2008 with inventory slightly lower than in 2007. I'll really go out on a limb here and say that I see a much larger inventory reduction in 2009.

Interest rates - I know there's a lot of hope out there that mortgage interest rates will drop significantly and bring hoards of buyers out. The economic indicators I see don't lead me to believe there will be much if any drop in interest rates in 2008. Inflation worries seem likely to continue to plague us all year. That doesn't mean I think we'll experience huge inflation. But it will worry the Fed and other policy makers and that means not much relief on interest rates.

A couple of special notes. These predictions are what I see for the counties where I do most of my business: Fauquier, Prince William, Warren and Loudon. The other two counties I serve, Rappahannock and Culpeper are deserving of special note.

Culpeper county will suffer for a very long time. The overbuilding in Culpeper county is the stuff of legend. We'll still be talking about this 20 years from now. Unfortunately, prices will continue to decline deeper and faster here than anywhere else. Unless there is a huge new employer in Culpeper County very soon, we're looking at several more tough years.

Rappahannock County is on the other end of the spectrum. Since construction is almost non-existent and since it remains a highly desirable location for many people, the real estate market has generally been more stable. We've seen some softening in this market too, but I don't expect much additional softening in Rappahannock. The biggest factor affecting the market here right now is the credit crunch and I believe that situation will improve significantly in 2008.

There's my prediction. What do you think?

Stealing Copper

There are reports surfacing up and down the east coast of copper thefts in empty houses. Generally these are the homes that are foreclosures or short sales, or sometimes even relocations, where the owners are long gone and the home has sat vacant for an extended period of time.

The price of copper is sky high and so opportunistic thieves are going in and taking copper pipes out of the walls, copper parts from HVAC systems and any other copper or possible copper in the house. The thieves are worried about being fast, not neat, and beyond the cost of replacing what they've stolen is the cost of repairing the other damage they've done.

If you own a home that's vacant, it would be a good idea to make arrangements with a neighbor or your real estate agent to keep an eye on the place. Lights on timers isn't a bad idea.

If you're buying a home that's been vacant for awhile, don't underestimate the importance of that final walk through. Make sure you look at everything closely and test all systems to make sure they're still in working order. If you're buying a home that's sold in "as is" condition, meaning you're stuck if the home is vandalized, think carefully about what you might need to do to protect yourself. This is a good time to have a discussion with your real estate agent. If you don't fully understand the contract provisions relating to the condition of the home, now's the time to get a fuller understanding of that information.

2008 is likely to continue to provide lots of empty homes for thieves to target. Real estate agents are going to have to start thinking about how to protect their clients, both buyers and sellers, and the properties involved in the transaction.

Declining Markets Lending Issue

What To Do

As a consumer it's got to feel a little confusing right now, trying to figure out what's going on in the real estate market.  If you're trying to decide whether now is the time to buy or sell there are a host of opinions coming at you, and new news stories every day about the latest in real estate.

I thought today I'd try and summarize some of what's out there and see if I can make any sense of it all.

I can't tell you whether we're at the bottom of this slump. What I can tell you is that, unlike some areas of the country, we've already seen some pretty significant price cuts. Yes, there are still overpriced listings out there. (There are always, in every market, overpriced listings!) But people who are serious about needing to sell their homes are getting it.

What I suspect is that we're going to see the number of homes on the market stay fairly flat for a couple of months and then spike significantly again in the spring. I don't think we'll see enough sales between now and then to compensate. That means, at the very least, no price appreciation any time soon.

If you're buying and are comfortable you can stay put for five years, I'd suggest going ahead and buying. If you're looking at a more short term situation, perhaps a transfer in a year or two, you may be better off waiting.

From a selling perspective, I think things will be flat for at least the next year. And, I think we're a couple of years away from seeing any price increases at all. So, if you're not willing to wait more than two years, you might want to sell now.

The other big question in all this is what will happen with interest rates. Right now I wouldn't bet on them going any lower. There still appears to be plenty of worry about inflation out there. As long as that persists don't count on lower interest rates.

And, in the background is all the noise about government and private plans to help with the subprime mess. Most of that will be too little too late to ease much of the pain. At best, it provides a little cushion and keeps things from getting any worse. The efforts on all those fronts may, finally, have given us a bottom. And, for that, we can be grateful!

Shameless Self Promotion

I wanted to let you all know that I've been added as a featured blogger by the Fauquier Times Democrat and the Rappahannock News. Their new sites are up today. You can check out all the blogs there, including mine, at http://www.fauquier.com/blogs/

or, for Rappahannock

http://www.rappnews.com/blogs/

The blogs you see there will be different than what I do here, although the Fauquier and Rappahannock versions may be more similar than different.

I hope you'll check out these new venues. I'll be interested in hearing your feedback.

If you're a fan of this blog, don't worry. What I do here will continue, day in and day out! I'm having too much fun to give this up!

I look forward to hearing from you on any of my blogs!

Short Sale Misery

I've heard a lot of talk amongst real estate agents lately, both online and in person, about short sales. And, the gist of the conversation is that they are horrendous and no real estate agent in their right mind would do them.

While I certainly understand the sentiment, I am disturbed by the remarks.

First of all, let's be clear that real estate agents are running a business. And, if the business does not make a profit it soon goes out of business. So, it's not reasonable to expect real estate agents to take on listings that will not pay them but will result in increased costs.

There are a number of reasons why it's risky to list a property where the owner owes the bank more than the property is worth. First of all, you sign a listing agreement with the owners. And, in that agreement, they agree to your fee. But the lender must agree to any contract and they have a history of voiding the listing agreement you signed with the owners and telling you what your fee will be. (By the way, it's always lower.) At that point you've already done a tremendous amount of work and it makes no sense to walk away, even if it turns out that what the bank pays you is a pittance. Something is better than nothing.

And, you'll work much harder for that reduced commission. Dealing with the bureaucracy at most lending institutions is a real pain. And, often you're dealing with both a first and a second mortgage.

The other big problem is that most short sales never happen. In most cases, especially in this kind of market, the property goes into foreclosure a couple of months later. Since lenders already have established relationships with real estate agents, you then lose the listing altogether.

All that being said, there are families who need help keeping their homes from going into foreclosure. We are uniquely positioned to perform that service. And, there are, of course, big hearted people who willingly take these risks and help these homeowners. I'd just like to see more of them.

It's interesting that attorneys don't refuse to take on bankruptcy cases our of fear of not getting paid. They get their fee up front or they don't take the case. Maybe that's what needs to happen here. Or maybe there's a retainer so the agent knows there will at least be some pay for their trouble.

I think the industry has an obligation to figure this out. I think it's in our self-interest to show we're willing to go out of our way to help. It certainly can't hurt the overall reputation of our profession!

South Wales Update

It's been a little while since we've peeked in on the South Wales community and so I thought we'd take a look at what's happening there. Big picture numbers are interesting, but really, even at a county level they can be pretty meaningless.

When I originally pulled up the active listings for South Wales I got a pleasant surprise. The inventory volume is the lowest it's been in well over a year. There are currently 13 homes for sale.

The number of active listings here has been hovering around 18-20 pretty consistently for the past year. So 13 is definitely good news.

The next question is, what happened to the other listings?

Well, I'd like to tell you the reduction in inventory is due to all the sales happening in South Wales. But that is clearly not the case. In the last three and a half months only four homes have sold.

Interestingly, given the discussion on pricing in yesterday's blog, one sold for a net (after giving closing costs to buyers) of $365,000. Consider that the lowest sale price in there during the last quarter of 2005 was $530,000. That's a price drop of 31%! By any measure, that's substantial!

Six homes have been withdrawn from the market in the last few months and not relisted. If you add those six back in the total actives go right back to 19, about where they've stood all year.

So the real question is, have those sellers truly given up? Will they be back on the market in 2008?

The really good news for South Wales is that none of the current listings appear to be bank-owned or short sales.

There's always a silver lining!

Falling Prices

There's an article in today's New York Times about a zip code just south of Los Angeles that has had the biggest decline in home sales of any place in the country. Sales have declined by 78% between third quarter 2006 and third quarter 2007. That's certainly a much larger decline than anything we've seen here locally.

If we look at Culpeper County, the hardest hit county, locally, and look at the last three months of data, there's a 27% decline in total sales year over year. Now bear in mind that 2006 was also anemic compared to 2005. For the total two year period, the drop between 2005 and the last three months of 2007 shows a total drop of 58% in home sales in Culpeper County.

The conclusion the author of the piece in the Times reaches is that it's come to this because of an impasse between buyers and sellers. Buyers are unable to afford to buy at current prices. Sellers are unwilling, or often unable, to bring down the price of their home in order to sell it. The author mentions one family whose home has been for sale since August. In that time they've dropped the asking price by 5%.

Strangely enough, that's the only statistic the author provides about price drops in that neighborhood. If it's anything like the local area other homes in that area may tell a different story.

Home prices here are clearly dropping. While the percentage can vary widely, neighborhood to neighborhood, 20% to 30% drops in average sold prices are not uncommon right now. And, that's a good thing!

While I'd question some of the author's conclusions in the NY Times article, he's got one thing right. When prices get to the right place, buyers will come back out. We're seeing some of that, it appears in the last couple of months. I can't tell you if we're at the bottom yet, but I think there's a decent chance you can see it from here.

Of course, climbing out of the bottom is going to take time. But I believe sellers in our area are starting to do their part. That's good for all of us!

November Numbers

The November numbers are out for our area. The good news is that, finally, the trend of ever increasing inventory seems to have stopped, at least for this month! I suspect that this might not be a permanent condition given that it's November numbers we're looking at.

Typically as we get close to the holidays, many families take their homes off the market as they have enough to do without keeping their house in showing condition at all times.

The funny thing is, there are generally fewer buyers and fewer people tramping through your home anyway, But those few who are out looking at properties this time of year are serious buyers. The ratio of showings to offers goes up in November/December.

And, if you think about it, if a lot of owners take their homes off the market just for a couple of months around the holidays, if you're a seller the odds just got a lot better for you! A lot of your competition took themselves out of the running!

If you're a buyer and there's something you were seriously interested in that got taken off the market, no problem. Most agents can negotiate getting you in to see any property that the owners still ultimately want to sell. And, you won't have to worry about any other offers competing with you!

For those of you who want the hard numbers each month, I'll be posting those over the next 24 hours. They will be posted both in the Local Market Conditions category and in the category for their respective counties. But no e-mail link will go out for the numbers this month. If you want me to send you an individual e-mail with the link to something specific, just let me know.

Let's hope the reduced inventory is more than just a blip and that this is the beginning of that light at the end of the tunnel!

New MLS Changes for Energy Efficient Homes

I've been saying for awhile that, given the upward climb of energy prices, buyers are more and more interested in knowing about the energy efficiency (or lack thereof) of the homes they're thinking about buying.

New features in our local MLS system now make it easier for buyers to find the homes that have features that cater to that desire.

It is now possible to designate when a home has Energy Star Appliances, an Energy Star Heating System or an Energy Star Cooling System. And, that, in turn, means that buyers will be able to ultimately search on those features.

This is only the beginning of a revamping of the MLS system to help buyers more easily find "green" homes. While "green" is a fuzzy term without any real, solid definition, the changes being made will allow buyers to search for concrete items that make up their definition of green. The rest of these changes will be announced in the first quarter of 2008 and I'll tell you more about them then.

But meanwhile, if you're a seller, or if you're thinking about selling you should be figuring out how to make use of this information.

First of all, if your home is already listed, make sure your agent knows about any Energy Star systems in your home and that they update the MLS system to reflect that.

Secondly, if you're thinking about putting your home on the market in the next six months, think about what "green" qualities your home has now or what things you might want to invest in before you put your home on the market. If you were going to replace that old dishwasher any, make sure you get one that has the Energy Star certification.

This is just the start! I truly believe that investing in energy efficient features for your home will save you money later and will also enhance the marketability of your home when you sell.

If you've got questions on this or would like some guidance on what you can do in preparation for selling your home, I'm happy to help!

Governement Help?

We finally got the official speech on the government's plan to help with the foreclosures likely to hit the market in 2008.

First of all, let me say I applaud our government's willingness to try to address an issue that will impact a lot more people than just those facing foreclosure. If home prices continue to fall and credit continues to be difficult to obtain, the economy in general will feel the effects. A recession sparked by a real estate slowdown is a possibility. And the government should be concerned.

The plan as revealed says that there will be a five year freeze on the interest rate on their mortgage for certain homeowners. Those who would qualify for this are those who meet these criteria;

• Obtained an adjustable rate mortgage between January 1, 2005 and July 31, 2007.
• The initial fixed rate period is less than three years.
• The property is your primary residence.
• Your ARM has not yet reset to the higher rate.
• You are not behind on your payments.
• You had less than 3% equity in your home at the time of purchase.
• Your FICO (credit) score is 660 or below and has not increased by at least 10% since you obtained the mortgage.

I believe that it is a very small group of homeowners who will qualify for this plan.

If you have a higher credit score and/or more equity in your home, your lender is encouraged to work with you to renegotiate the terms of the mortgage.

Note that I used the word "encouraged" there. All of this is entirely voluntary on the part of any lender.

My suspicion is that this plan ultimately will prove to look much better than it performs. In the end, it has already helped the stock prices of major lenders, it probably gets politicians some points for proposing a solution. However, a year from now, I'm not sure it will be seen to have had much impact.

What's your take?

Explanation of Real Estate Market

There was a terrific article in last Sunday's Richmond Times Dispatch about the real estate market downturn and how we got here. It's a very sensible explanation.

This article also walks the line between absurd boosterism of the real estate industry and extreme pessimism in the interest of selling papers. It seems to me that they got it just about right.

The author does take a harder line view of helping those who got hurt, particularly if that help is government related. I'll wait until the full details of the government's plan is revealed before I pick it apart. But I would like to make two general points on this.

First of all, to some extent helping cushion the extent of the pain of the downturn is in almost everyone's best interests. If the economy gets dragged into a recession by the current real estate downturn that's not good for the country as a whole. So, there's room for discussion, I think, about government's role in helping.

Secondly, while no one is arguing that everyone on the verge of losing their homes is deserving of a bail out, there's something to be said for the quality of mercy. Who of us hasn't, at some point in our lives, from someone, gotten some help we in no way deserved. I'm not saying bail everyone touched by this mess out. But I'm saying let's look at a measured approach that looks at what's possible, what makes sense for the economy and the country and what can we find it in our hearts to do for those caught in a bad situation.

Strange Juxtaposition

I had the good fortune this week to attend a leadership conference sponsored by the Virginia Association of REALTORs. I think VAR is a top notch organization and I'm proud to be a member. The conference itself contained some really excellent content.

I was especially pleased with the presentation by a college psychology professor from California. His field of expertise is influence, a field of study I didn't even realize had it's own experts! His presentation talked about how influence is an outgrowth of credibility. Credibility he defined as being expertise plus trustworthiness. Typically establishing credibility is a very lengthy process. But given the nature of what we do, it's not always possible to wait a few years while you establish credibility with a client. And, so we were treated to a presentation on how to speed up that process. His ideas were good and although the topic sounded like we could possibly talking about manipulation, the bottom line in everything was honesty and integrity. I liked that. Clearly no one ever established credibility by trying to short circuit those essential ingredients.

An important part of the process he discussed was being willing to share hard truths that are not necessarily in your self-interest. So, let's say I tell you, as a seller, that you shouldn't sell your house right now. Theoretically, that's going against my self-interest since I'm unlikely to make any money in the short term if you choose not to sell. But you are more likely to perceive me as credible when I do this because you know I've spoken against my self-interest in order to give you the truth.

This presentation was immediately followed by a public affairs spokesman from the National Association of REALTORs. I'd like to feel as good about NAR as I do VAR. Really I would! But they definitely make that difficult!

The gentleman from NAR gets up and starts the same old song and dance about how the media isn't fair and doesn't love us. He talked about how they only publish bad news. He used as an example the latest sales numbers that were released to the press in a nice package that even gave them the positive headlines they could use to lead the story.

Talk about no credibility! If journalists had used NAR's proposed headlines for the last two years they'd be out of a job by now! NAR has continued to tell everyone how we've hit the bottom every single quarter! Of course, they've been completely wrong, but it hasn't stopped them from continuing to lose credibility with the public, journalists and economists as they keep trumpeting their positive spin.

Tell the truth, the whole truth, the ugly truth, the painful truth. You can not spin your way into an up market! And, in fact, you hurt every real estate agent's credibility when we sit down in front of a seller and have to tell them how rough the market is after you've been telling them the reverse!

It was a very odd way to follow a piece on gaining credibility through truth telling! I don't know exactly who put the agenda together. And, they may not have known exactly what the full content was for either presentation. But it's surely an odd juxtaposition of messages!