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Need To Be Flexible?

I stumbled across this quote in a blog post by Richard Florida today:

But in an economy that revolves around mobility and flexibility, a house that can’t be sold becomes an economic trap, preventing people from moving freely to economic opportunity.

I'm a fan of Richard Florida's work. But I'm trying to decide to what extent I believe the statement above.

I'm definitely advising more buyers who are young and likely to transfer often that they should rent unless they'd like to become investors.

 So is owning a home too much of a risk in today's economy? What do you think?

 

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The Danger of Buying a Condo

As this article from the Chicago Sun Times makes clear, buying a condo can be a lot more complicated than other real estate transactions.

Lenders have been very cautious for several years now about mortgages on condominiums. The truth is that many condo associations are essentially broke. Since the owner only owns from the drywall in, all other maintenance falls to the association. If they've got no money that maintenance may not happen, causing all property values to fall.

The article talks about the other issue causing banks not to lend on condos, too many rentals in a building or development. Of course, if you can't sell your condo because no one can get a mortgage and you have to move, you're likely going to rent your condo out, exacerbating the problem.

Prince William county is where we see the most condos in the area I sell in regularly. But there are a few condos in Culpeper and Fauquier as well.

If you're thinking about buying a condo, start working with your lender early in the process. Have them check out any association you're looking at to make sure it's not on their blacklist. And, as with buying any property, do your homework!

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Why Sellers Won't Sell

How people think about real estate, economics and what's going on in their own personal financial situation has a lot more to do with the current state of our economy than most of us realize.

This story from the Planet Money team illustrates that nicely. Sellers can't bear to lower the price, often even if they still get a very nice profit.

Are you holding on? What for?

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Planning Ahead

We're beginning the work of downsizing. That puts me right where a lot of you are. Wondering about selling the house; figuring out what we have to do between now and when we put it on the market; and making a list of what we want in our next house.

It'll be interesting to see the process from the consumer side. Last time we bought and sold I wasn't yet a real estate agent.

So I've decided to share this process with all of you. This will be an occasional series on the blog. Our goal is to have the house ready to sell by next spring. Trust me, we'll need every day between now and then!

So, today I'll start with our initial plans for getting our house ready to sell.

It is always a good idea to get rid of everything you possibly can before you put your house on the market. In our case, it's even more important since our intention is to downsize substantially. Step one in our plan is get rid of everything we possibly can!

For us that means selling things on eBay or CraigsList when that's feasible. Giving it away on Freecycle if no one wants to shell out money for it. Donating it to charity if no one on Freecycle will pick it up. And, as a last resort (the ugly green bathtub) taking it to the landfill.

We're not good at taking stuff out of the house. We're very, very good at accumulating more stuff. I suspect we're not alone there! So every Saturday morning, hubby and I are touching base and asking each other one question:

"What did you do this week to get the house ready to sell?"

It's not a time for recriminations, just a way to keep us both focused on what we want.

I'd love to hear your stories about getting your home ready to sell. I'm prepared to believe I'll likely learn a thing or two!

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Reason Number Five - Gas Prices

Yesterday we talked about four reasons home prices aren't likely to rise much any time soon. Today we'll talk about a fifth reason that has the potential for an even bigger impact.           

                                                                  

Gas prices shot up 20 cents yesterday in Warrenton. Sheetz Exxon was charging $3.09 yesterday morning but was showing $3.29 on the sign last night. That's quite a one day jump. And it almost inevitably means a slow down in home sales in our area.

Like it or not, home sales in our area are primarily driven by people commuting into DC or northern Virginia. That's an ugly commute on the best of days and I often talk to people trying to figure out if it makes any sense to spend 3-4 hours a day in their cars. If you add a large spike in gas prices it becomes a lot clearer to some people that this is not a good trade off.

A recent story on Marketplace on NPR talked about the premium you now get for owning a home near mass transit. Home prices for properties near mass transit actually didn't really appear to show much of a bubble and haven't tumbled. Home prices in far flung suburbs, on the other hand, got hit the hardest. You only have to look at Culpeper to see the truth of that.

I don't know if $3.29 is the number that starts to put the brakes on what's already a fairly slow market. I know that if it goes much higher heading into the busy spring season I'll be worried.

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Why Prices Aren't Going Up

The actual title of this piece by the Planet Money team is "4 Reasons Home Prices Are Likely to Keep Falling". But early in the article they tell you that this area is one of the few where prices are not falling.

These reasons are all valid, however, even here. And they are all a part of the reasons home prices have stabilized here but are unlikely to rise much in the forseeable future.

The four reasons they site, in a nut shell are:

  • Glut of homes on the market.
  • Too many foreclosures and short sales.
  • Rising interest rates.
  • Reduced government support for mortgage market.

Tomorrow, I'll talk about the 5th reason we're about to see prices not rise (if we're lucky) and sales are likely to slow in our area.

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Can Anyone Afford to Buy Here?

Housing Virginia has a great tool called Sourcebook that allows you to take a look at the affordability of housing in Virginia by county. And it allows you to look at the data in about a dozen different ways. I've looked at the local counties and it's an interesting picture.

First of all, I think you'll be surprised at the overall affordability of the homes in Culpeper, Fauquier, Rappahannock and even Prince William. The national standard for when a home is considered affordable is if the payments are less than 30% of a family's income. By that measure, all of these counties are easily rated as being affordable. And, renting is cheaper than owning in three of these counties. (Prince William is the exception.)

If you look at the Housing Cost Burden, you'll see that the burden appears to be easing in some of these counties. Prince William is a good example of that. This statistic measures how many households are paying more than 30% of their income in housing costs. Unfortunately, in places like Fauquier County, this number is not only too high, it appears to still be rising. (Although note that the data stops in 2009 for this statistic.)

One of the charts that paints the most dramatic picture of what's happened in our housing markets is the Loan Activity charts. For the most part, each county looks like a giant backwards check mark. Except that the short part of that check mark is pretty darned flat! Prince William even shows some additional declines after beginning to bounce back.

Overall, I recommend taking a good look at these statistics. They will be most helpful to anyone trying to decide whether to buy or rent right now. But they will give any buyer or seller a good snapshot of what our market looks like right now.

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A Change Ahead

The winds of change are blowing in the mortgage markets.

The White House came out with a proposal last week to gradually phase out Fannie Mae and Freddie Mac's role in the mortgage markets. The proposal covers everything from reducing loan limits on what Fannie and Freddie will support, raising fees on transactions done with their backing and, ultimately, moving to a private market system of backing mortgages.

This comes in a year where there has been widespread discussion about doing away with the mortgage interest deduction.

No decisions have been made on anything. And, given the political polarization in Washington, there's a decent chance there's no movement on any of these issues.

But I believe a larger conversation has been underway for awhile in this country on whether we want to continue to promote home ownership as aggressively as we have for the last 40 or 50 years.

The answer seems to already be "no". I think the question is how far do we move away from policies promoting home ownership and how far do we go towards a neutral stance.

I don't think this country will ever completely walk away from our belief in home ownership and the benefits it brings to communities.

I also believe it will never again be as cheap and easy to get a mortgage as it has been in our lifetimes.

I hope the debate is a civil, well-reasoned discussion about what's best for us all. (But it's hard to believe that's still possible!)

 

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Buying A New Home - The Wrong Way

A cautionary tale, told by my colleague, Jim Duncan in Charlottesville.

Don't even think about buying a new home without representation!

 

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Write What You Know

Date: Oct. 27, 2010
Tags: , , ,

I love writing. It's one reason I have this blog. And, as anyone who's ever taken a writing class knows, the classic advice is to write what you know. For the record, I'm guessing a lot of successful authors have completely ignored that advice!

So, what I know these days is not entirely real estate related.

My husband recently suffered a heart attack, followed by quadruple bypass surgery. Not surprisingly, life has changed significantly.

So, it's been a little quieter on this blog lately. I believe that's about to change.

Meanwhile, I'd recommend healthy eating, lots of exercise and regular check ups. You just never know!

And now I return you to your regularly scheduled real estate posts!

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Painfully Funny

This YouTube video has enough truth to be painful whether you're a buyer, seller, real estate agent, lender or even a taxpayer. And if you're waiting on a loan modification, you may want to self-medicate before watching!

 

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Who Ya Gonna Call?

We had a shock recently when a home in our neighborhood here in Amissville went up for sale as a foreclosure. It's not all that common around here and the price was jaw-droppingly low.

South Poes Road

Given that we have almost identically sized acreages I needed to know more. Was the number I carry around in my head on what our home is worth way off?

So, I went to take a look.

The moral of this story is, you should do the same thing. Clients worry that they're bothering their real estate agent if they ask to go see a house for sale in the neighborhood. Trust me, if your agent's worth a dime they're going to be happy to get that call. Some day you may want to sell your home and the more educated you are about the local market the easier those conversations are going to be for your agent.

I'd argue all of my clients ought to be calling me at least once a year to see something for sale in the neighborhood.

And, how did it work out for us? The house has no central air and needs lots of work. I don't think that number in my head is wildly crazy. And, apparently the market thinks that house was priced pretty competitively as well since there were multiple offers almost immediately.

I'm feeling a lot calmer now!

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Breaking Up Government

There was a fascinating editorial in the Washington Post this last weekend suggesting that we should be moving big bunches of the the federal government out of the greater Washington DC area.

This is not a plan that's likely to be well received in this area. It will do nothing for our local economy. Demand for real estate surely goes down if this were to occur. (A VERY high percentage of my clients make their living in ways either directly or indirectly related to the federal government.)

But my hunch is that it may be the right thing for the country as a whole.

Let's move a whole bunch of government jobs to places with horrendous unemployement; think Ohio or Michigan.

Is it even possible any more for a large group of people to come together and decide to make a sacrifice for the greater good of the country?

What if the people in this region demanded that this be done? How would it change the attitude of people in the rest of this country towards those boogeymen "Government" and "Washington"?

Worth a try?

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Flooring From Wine Barrels

I do a lot of reading about new green products for the home. The greenest thing (other than not replacing things) is usually something recycled.

 

I came across the Fontenay company this week. They recycle wine barrels for use in flooring. Give all the wineries in this area, that seems like a great fit for homes in Virginia's wine country.

They've also got some cool furniture made out of wine barrels.

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Foreclosure Prevention Efforts Fail

Elizabeth Warren testified in front of a Congressional Committee today about the government's efforts to stem the flow of foreclosures. She may not have been quite this blunt but the gist of her testimony was that those efforts have failed. And, as far as I can determine they've failed on almost every front, every corner of this country. Virginia set up a state commission to work on foreclosure prevention. I'm sure all of those people were well-intentioned. I'm sure they tried really hard. But I don't believe you could point to any evidence that they had a significant impact.

Here are some of the measurements by which the federal plan has failed:

  • Expected to help up to 4 million homeowners.
  • Only 347,000 homeowners received permanent modifications.
  • Less than 1/2 of 1% of the money allocated for the program has been spent.
  • Real estate market remains depressed in much of the US, hurting the overall economic recovery.

Unlike others, I don't believe that this result was inevitable. Elizabeth Warren talked about some very specific reasons this hasn't worked. One of those is that the program never really had a good plan to deal with homeowners who owe more than their home is worth. The HAMP program is meant to help people in financial difficulty stay in their homes. But a lot of those people are upside down on their mortgages. If you don't address that part of the problem, the program is likely doomed to failure.

The congressional testimony didn't mention another reason I believe HAMP has failed. Every program the government has offered has made bank participation completely voluntary. The government offered financial incentives, yes. Those incentives might work well if the homeowner is not upside down on the mortgage. But if you owe $400K on the house, it's now worth $200K, no small financial incentives will get the bank to take that hit and adjust the entire loan amount.

The result is that the real estate industry across the country is still not in good shape. It's one of many factors impacting this recovery; slowing it down.

Elizabeth Warren said Treasury (who administers HAMP) has now lost the opportunity to get in front of the foreclosure crisis. I suspect that was lost a few years earlier when Ben Bernanke decided the real estate market didn't need any federal help to stabilize.

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Not My Problem

A lot of sellers are coming to the settlement table these days owing money. It's got to be a bitter pill to swallow. You own a home for years and instead of gaining in value, you have to pay money to get the thing sold and move on.

But last week I ran into a new situation. Sellers came to the settlement table apparently unaware that they were going to have to pay money to sell their house in Manassas. My buyer clients and I found out when I got a phone call from the listing agent asking us for money so that they could close.

There is no reason that I can think of that any seller should not know, long before they get to the settlement table that A) they will need to bring cash and B) roughly how much cash they will need.

There were two reasons I was given as to why it happened in this instance:

1) The sellers had no idea that the costs of the repairs that were required as part of the contract would be so expensive.

Reality Check: The sellers had estimates from the workmen over a month prior to settlement. They agreed to those estimates before any work was done.

2) They couldn't have known how much the loan payoff amount would be.

Reality Check: Actually they could have known that number at any time. Almost all lenders now have an automated system where you call, give them a date of settlement and they tell you how much your payoff will be. If they couldn't get that info themselves, they had a settlement company that certainly could have easily gotten this for them.

In the end, the sellers and their agent found a way to come up with the money and get the deal done. Neither my buyers nor I were out of pocket any money.

If you're selling your home, make sure that once you have a ratified contract (if not before) you have an estimated cost of settlement from your real estate agent that gives you an idea of what you will take away from settlement OR how much cash you'll have to bring!

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Kickbacks Are Illegal

There has been some funny business going on around home warranties in the real estate industry. OK, maybe it's not just home warranties. Sometimes stopping kickbacks seems a lot like a Whack-A-Mole game. Eliminate it here, it pops up over there. Some people just don't get this whole "spirit of the law" thing.

So, here's how I've seen it work. A certain home warranty company makes an arrangement with a certain real estate broker. For every warranty that is sold the agent gets a fee, let's say $35.

Is $35 enough to change the behavior of a real estate agent? I'd surely hope not. But these are desperate economic times for some and who knows. More importantly, in my eyes, this is definitely providing the appearance of impropriety. For that reason alone it's a bad idea.

Last week HUD agreed and said:

A payment by an HWC for marketing services performed by real estate brokers or agents on behalf of the HWC that are directed to particular homebuyers or sellers is an illegal kickback for a referral under section 8

This is great news for the industry. No one was making a fortune off these kickbacks. It certainly wasn't worth it in terms of the damage to our reputation.

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The Disappearing Tax Credit

The tax credit deadline is upon us. The $8000 tax credit for first time home buyers is only good if you can get to settlement by June 30th. There was legislation pending in Congress to extend this, but in the end, it died. It looks like that June 30th deadline is a hard and fast one.

There's been a whole lot of hollerin' about this in the real estate world in the last week. I remain unsympathetic.

One agent wrote that his client was being put in a position that he would have to withdraw from the contract. Nonsense! Everyone knew what the deadline was going in. Everyone knew, or should have known, that the odds of getting a short sale to close by June 30th were pretty awful.

If the only reason someone was buying that house was for the $8000 tax credit, that's a pretty poor reason for making a home buying decision. What are they going to do, wait for the next real estate crash to see if they can get one then???

All the moaning and rending of garments now seems a little suspect to me.

I've been a little cynical about the long term effects of the tax credit anyway. I'm not all that sorry to see the end of the whole thing.

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Where We're Going

We're a restless bunch in this country. If you want to see where we're coming from and going to, Forbes just published this great map using IRS data.

It let's you look at a specific county and see where people are coming from and moving to in that county. It's a fun map and I'm going to spend a lot of time playing with this one.

The one thing I notice after looking at this for a little while is that most of the movement is very local, within Virginia. You don't see huge migrations in Fauquier, Culpeper or Rappahannock either from or to other states. Now look at Prince William or any of the more traditionally "northern Virginia" counties. Lots of movement both from and to many other states.

Now think about the real estate implications. Generally, looking at this map you'd expect to see more turnover in inventory in Prince William than in Culpeper, Fauquier or Rappahannock. And, you'd be right!

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Switching to Rappahannock Electric

Our electricity provider switched June 1st, from Allegheny Power to Rappahannock Electric Cooperative. We live in Amissville, but this is happening to quite a few people in these parts.

If you're one of those people you should have received a notice from Rappahannock Electric by now. If the cooperative structure is new to you, here's what REC says on their website:

 

So, this is going to be a little different. You'll likely not notice much difference in rates, initially. At least according to REC's web site. But their rates are higher than those of Allegheny. And, eventually we will all be moved up to those higher rates. That might make this an excellent time to look at ways to increase your energy efficiency before those higher bills hit. (And while there are tax incentives to use!)

You should also have received a package from Rappahannock Electric in the mail this week that includes an application for membership. I don't know about you, but that's definitely new to me. Their web site says that your electricity will NOT be turned off if you do not complete the application. They'd like you to, but it is not a requirement.

I had no complaints with Allegheny, but have no reason to oppose the switch to Rappahannock either. Come the next big ice/snow storm we'll all have a better idea of how good they are. Let's hope it's a long, long time before we know!

 

 

Cooperatives are local, customer-owned, democratically controlled, not-for-profit utilities. Cooperatives exist for only one reason – to serve. Anyone who receives service from the cooperative becomes a member and has an ownership interest in the cooperative. At the end of each fiscal year after all expenses are paid, any excess revenue is assigned to the members based on their patronage with the cooperative. As financial conditions allow, a portion of those assignments are retired and returned directly to the members.

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