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Current Affairs
Don’t rock the boat baby…
There has been a recommendation by The President’s Commission on Fiscal Responsibility and Reform to reduce the mortgage interest deduction for home owners. The commission recommended turning the mortgage interest deduction into a tax credit, capping eligible mortgages at $500,000, and eliminating tax benefits for second homes and home equity loans. This deduction has been in place over 80 years and has been on of the main reasons people make the move from becoming renters to home owners. The tax deductibility of interest paid on mortgages is a powerful incentive for home ownership and is one of the simplest provisions in the federal tax code. In a recent survey commissioned by NAR and conducted online in October 2010 by Harris Interactive of nearly 3,000 homeowners and renters, nearly three-fourths of homeowners and two-thirds of renters said the mortgage interest deduction was extremely or very important to them. If this reform takes place it will have far reaching implications in our economy and in our housing sector.
So, how will the change in mortgage interest deduction affect housing?
- There are currently 75 million homes in America, approximately 51 million are owner occupied and have a mortgage. In 2008, nearly 38.5 million people claimed a deduction for mortgage interest on their taxes. Changing this IRS code will affect a huge number of people who file taxes each year and count on this deduction as part of their home budget.
- It is estimated that the home prices and values of homes will drop by close to 15%. This will impact home owners net worth and wealth drastically. Home values in 2009 were estimated at $19.3 trillion meaning nearly $2.9 trillion of wealth would be lost by homeowners – a drastic situation for many Americans.
- Housing is nearly 20% of GDP as each property sale generates over $60,000 in revenue and touches over 20 industries. As mentioned above, nearly 3/4 of home owners and 2/3 of renters claim the mortgage interest deduction as extremely or very important to them and their decision to buy a home. This will substantially reduce the number of sales every year will affect the overall economy.
- This change will affect an already rocky housing sector of our economy. Billions of dollars have been spent to support the housing sector so does it really make sense to reverse the trend now?
- Jobs will be lost as a result – real estate offices will close – the need for Realtors will diminish – builders will go out of business – title companies will reduce in size – the mortgage business will shrink – county government employees in record rooms will lose jobs – trades people will lose their jobs and the list can go on and on.
This decision will be bad for business, home owners, the economy and so much more – keep the mortgage interest deduction in place for the good of America. Get it? Got it? Good!
Now, go sell something!
My Top 10 Predictions for 2011 are finally here!
As we approach the end of the year, it is time to reflect upon what we experienced, what is happening now and where things may take us next year to allow us to adjust our plans and to make the most of our opportunities ahead of us!
This past year was once again riddle by media speculation on housing and its demise on a national level while our market was virtually ignored – even by local media outlets – on how resilient we are relative to the rest of the country. We will see this again this upcoming year as negative news always sells. Keeping this in mind, areas of concern that will be reported by the media are interest rates, pricing, foreclosures and short sales. We have seen a decrease in inventory as the holiday season is upon us but houses continue to sell nonetheless. The driving forces include interest rates which remain at generational lows and prices that are beginning to rebound in many areas encouraging fence sitters to jump off and become home owners.
So, what is my forecast for 2011? Let’s take a look!
- Short sales will remain difficult as banks continue change the rules under which they operate. Until there is a systematic, streamlined process buyers and sellers will remain in peril when dealing with short sales. Recent issues have been with banks countering contracts to ridiculous values and countering with unrealistic settlement dates of just a few days after making our clients wait over 15 months for an approval. The banks need to hire people familiar with the home buying process or train the ones they have to understand how real estate sales are processed in order to facilitate more successful sales. The problem is, this won’t happen in 2011.
- Rates hit record lows the second week of November and have increased every week since with the announcement of QE2. However, the central bank voted to keep the target range for its benchmark federal funds rate at 0 to 0.25 percent, and reiterated its commitment to purchase an additional $600 billion in long-term Treasury securities by June 2011. This announcement should help keep interest rates below 5.5% for 2011.
- New home sales will rebound locally as builders have weathered the storm. Additionally, we will see more local builders enjoy success as new companies are formed or have been formed recently and they can fill the new home niche better than the national builders with their knowledge, skill and flexibility as they have lower overhead. Competitive pricing, up to date floor plans and desirable locations will contribute to all builders’ success in 2011.
- Many agents, loan officers and title agents will drop out of the business as the business becomes more specialized with short sales, foreclosures and continuous changes in financing. The consumer will demand professionalism from their agent. The new agent pool will be younger and will not only embrace technology but will use it to their advantage over “experienced” agents.
- More agents will gravitate to utilizing video as the consumer prefers video over text and pictures. Those who adopt early will enjoy more success than those who do not embrace this medium of communication – much like the implementation of various social media tools. Video is the new trend in real estate in 2011 and beyond and is here to stay.
- We will see a moderate increase in prices in 2011. Some areas will see greater gains and some will see moderate declines as each market/neighborhood has its unique benefits and challenges. The saying has gone from “all real estate is local” to “real estate is hyperlocal” – use a professional.
- The banks, Freddie Mac and Fannie Mae will slowly release foreclosures onto the market to protect their values and the market values in neighborhoods. Foreclosures will remain a constant force in the news in 2011.
- The economy is recovering slowly but at a rate that has been insufficient to bring down unemployment nationally. Locally we are at 4.8% and we should remain low compared to the rest of the country. The DC area boasts the lowest unemployment relative to the 15 major markets around the country and this trend will continue through 2011. This trend will help sustain our real estate market as houses are where the jobs go at night.
- The market and consumer will demand more professional agents with the ability to provide the right tools and technology to make their transactions smoother and efficient. Agents who attend trainings, earn designations, and continue their education will see their incomes soar above the agents who continue to conduct their business as usual.
- Companies that provide up to date educational opportunities, hire the best of the best, invest in technology, services and support plus trim their expenses by making tough choices will thrive in 2011 and beyond. Companies that are top heavy, unable to consolidate or provide tools necessary for success will fail and close providing opportunities for well balanced companies. As a result, more closures in the real estate industry will continue in 2011.
As you can see, the New Year will offer challenges and opportunities. Recognize how you can take advantage of what is presented to you and make 2011 your best year ever! Get it? Got it? Good!
Now, go sell something!
How many of my 2010 predictions came true?
It’s review time for 2010…
Well, the predictions forecasted by me last year were:
- Interest rates would rise in the second quarter as the government was going to exit the purchasing of Mortgage Backed Securities . Wow, was I wrong here, interest rates sunk to the lowest level in history.
- House values will stay stable in most price points below $400,000 and will drop in mid price points – $400,000 – $800,000. Fewer buyers will take advantage of market conditions and consumer confidence will keep them where they are today. Well, I was pretty damn close – prices increased slightly in the lower price ranges but definitely dropped in the mid price ranges and consumer confidence remains in the tank.
- Unemployment will rise through the first half of the year then level off late third quarter – we can’t get any worse than we are nationally. Locally, we are in good shape with unemployment and we should hover around where we are today. The prediction was true on both fronts and unemployment is contributing to low consumer confidence. As the saying goes, when your neighbor loses their job it’s a recession, when you lose your job, it’s a depression – many Americans are still feeling the effects of unemployment nationally.
- Foreclosure inventory will increase nationally – ours will see a slight increase but won’t have a significant impact like it has in recent years. Any foreclosure inventory locally will get absorbed quickly as we have such pent up demand. Again, pretty much true, our foreclosure numbers increased slightly but boy, nationally, they went through the roof!
- Short sale inventory will be bigger than foreclosure inventory nationwide – including our area. It is important to understand how they work, get a designation to take advantage of this opportunity and to understand how to get them through. As predicted, short sale inventory increased both nationally and locally. And, it is true, if you have a designation, you understand the process better and can help more distressed home owners as a result.
- More real estate offices will close, merge and we will see additional acquisitions – boutique real estate offices will become a thing of the past as agents and clients demand more technology and services that smaller firms cannot afford. This most definitely occurred and will continue through 2011 – especially in the large regional independents and the franchises agencies with fewer than 15 agents.
- Social media marketing will be even more in the forefront moving into the future – get on board or get left behind. The consumer embraces this medium – so should you! Many agents have gone way overboard and although they are embracing social media, they are not utilizing it correctly and as a result are turning off consumers.
- Videos will be more prevalent in agent’s marketing of homes and themselves. Get proficient in the use of flips, camcorders, and digital cameras that have recording features. More agents are becoming aware of video and we are seeing more of it in the market but more need to utilize the medium as the consumer is drawn to videos.
- More agents will go green as this will become an even bigger “buzz” word going forward. Get ahead of the curve and get a green designation today! Yes, agents did go green but the residential market is still lagging behind the commercial arena in scope and magnitude of going green.
- More agents will exit the business as the business becomes more specialized. This has happened which is a good thing for both the profession and more importantly, the consumer. Today, more than ever, it is important to work with a Realtor who is full time and has the capacity to convey market conditions, trends and is familiar with the contract and process.
Well, in retrospect, the vision was pretty decent for what was going to happen in 2010. The one item that was unfortunate is that people weren’t able to take advantage of the low rates or were not in a position to take advantage of the low rates due to value issues. However, many were which is great for them. Be on the lookout for my predictions for 2011! Get it? Got it? Good!
Now, go sell something!
It’s the most wonderful time of the year…
Well, well, well what do we have in store for the real estate market now through the end of the year in Northern Virginia? I believe we are in for a surprise this year. We are going to finish the year stronger than many expect.
Typically, this is a slower time of year but we haven’t seen as big a slowdown as we normally do during the holidays. The trends show us houses are coming off the market rapidly both through sales and being withdrawn from the market due to it being “that time of year”. But interest rates are at all time lows and buyers are out in full force! In speaking with other professionals – the ones who have been working hard the last few months networking, giving great advice along the way about our market and are communicating with their clients are reaping big rewards. We have one agent, Becky Green, who sold 3 houses this past week – a holiday week no less. Toll Brothers Amberlea in South Riding had 25 visitors on Saturday and we wrote a contract early Sunday morning but I am sure they saw similar activity later in the day – 2 visitors were in the model when we left. An agent in our office wrote a contract on a town house in Herndon and there were 3 others competing for the same house. So much for the slow down around the holidays!
So, where are these buyers coming from? Many are relocation buyers coming into the area and others are relocation buyers from the spring who decided to rent. They wanted to get familiar with the market, our area and wanted to wait and see what was going to happen with the economy and housing sector and now, their leases are ending and they are ready to buy.
In a recent Fannie Mae survey, the following information was revealed by the participants:
- People trust homeownership as an investment over buying stocks (66% to 16%). The stock market has seen its’ tremendous fluctuations and people have no control over which direction the stock will fluctuate. In contrast, upgrading the home adds value and paying down your mortgage increases the equity in the homes plus the many other advantages of home ownership. In addition, they also trust owning a home over investing in a 401k, buying an insurance annuity or investing in a mutual fund. People find investing in a home safer than any other investment except putting their money into a savings account.
- 96% of homeowners feel that homeownership has been a positive experience – what’s not to like? Stability, pride in ownership, sense of community and many other factors contribute to this positive experience. 17% of renters think renting has been a positive experience which means 83% feel it is negative or neutral. This is a huge disparity which reflects now is a good time to buy!
Additional findings in the report that we need to make note of in the report include:
- 62% of renters have long-term ownership aspirations – we just mentioned this above in the buyer pool in the market today. Many more will enter the market as their leases come to an end – stay tuned.
- Americans continue to expect home rental prices to rise more than home prices over the next year. Americans believe that it is more likely that home rental prices will go up rather than go down by a ratio of almost 4 to 1. Right now, we have a 1.7 month supply of rentals and we see rental rates increasing on a year over year basis in our property management group.
- An overwhelming majority of mortgage borrowers remain satisfied with their loans and 3 in 4 Americans are confident they would receive the necessary information to choose the right loan. The teaser rate products, no income no asset loans, and balloon products are out of the market along with many others that created our housing crisis that we are climbing out of today.
- Non-financial considerations, such as accessing good education and safety, continue to trump financial reasons for owning a home. With the top three reasons (education, safety, and more space) all increasing in percentages since the last report. People realize how important “home” and one that is theirs is in life.
- Since the time of purchase, 59% of mortgage borrowers have seen their home value increase. In many markets, prices have stabilized or increased throughout Northern Virginia. It is time to get into the market before the price escalations begin to soar.
- In conclusion, the Fannie Mae survey showed that homeownership is still considered by the vast majority as a good investment (66%) and a positive experience (96%) and, most importantly to those sitting on the fence, 68% think it is a good time for people to buy a home – and you should!
Based upon the information above, it is critical, now more than ever to reach out to a true real estate professional and get the facts on the market and don’t rely on the national media for your real estate information. Who knows, Santa may bring you a nice surprise for Christmas! Get it? Got it? Good!
Now, go buy something!
Where’d Chicken Little go?
Ok chicken little, the sky didn’t fall which is a good thing for us in real estate. The moratorium has come and gone – the freeze was lifted – and foreclosures continue to happen. Reports indicate that foreclosures were up 65% the third quarter of this year in year over year reporting. As much as foreclosures are a part of the market now and will be for some time, they are just trickling onto the market here locally. Currently, they account for only 494 of the 7,979 houses for sale in Northern Virginia. As these distressed properties are such a low percentage, they are having little to no impact on housing values in our area. As a matter of fact, Fannie Mae is spending thousands of dollars renovating homes to maximize their values to get a better return than they received previously when they foreclosed on houses.
We have heard of people waiting for prices to drop or they are anticipating a wave of foreclosures to crash onto our market. Up to this point we have not seen any indication of either of these phenomenons. Historically speaking, foreclosure trends show that the foreclosure rate slows down this time of year until just after the New Year. There has also been a slight uptick in rates which may continue into this week with the elections, unemployment numbers being reported and the Fed meets to discuss the economy. If they continue their trend, it means waiting to buy can cost you money. Inventory levels have stabilized, prices have stabilized and rates are fantastic and we see no reason why now isn’t the ideal time to buy a home in Northern Virginia. We have the fundamentals in place that transcend markets – the government, cultural activities, diversity, great schools, low unemployment, access to the mountains and the ocean plus so much more. If you are looking for long term stability in the housing sector, look no further than Northern Virginia. Get it? Got it? Good!
Now, go buy something!
Don’t be spooked by the media!
It must be Halloween because all of the scary news out there is about real estate. All over the place you see, read or hear about foreclosures, double dip declines in pricing, the widespread number of delinquencies that will result in defaults and even more declining house values. It is all so scary – unless – you know the truth!
Here is what the media sent out this week:
S&P Case-Shiller Index Records Widespread Declines in Home Prices Home prices across the country slipped in August, according to data release by Standard & Poor’s Tuesday. Home process decreased in 15 of the survey’s 20 metropolitan statistical areas on a month-to-month basis. Guess what happens when you read further? Only Chicago, Detroit, Las Vegas, New York and Washington D.C. posted what S&P called “marginal improvements” in home prices over July. Hey, at this point I will take “marginal improvements” over declines any day. As we have been reporting – our prices are stable in most areas, increasing in many others and showing modest declines in just a few locations. Here is what could have been their headline:
S&P/Case-Shiller 10-city composite remains up 2.6 percent from August 2009 levels. In addition, the 20-city composite is 1.7 percent above a year earlier. Have no FEAR – it’s not that bad. But why speak about the good news when you can haunt people with bad news? Here’s what they continue to say “We still fear that the continued weak demand and high supply will push process gradually lower over the next 12-18 months” said Paul Dales, U.S. economist for research firm. “The current unfavorable balance between demand and supply is certainly consistent with a sustained fall back in prices” which means if houses don’t sell prices will fall – basic economics. Here’s what I say, “If interest rates remain low, prices remain stable and consumer confidence comes back into the housing market – prices will increase further”. The National Association of Realtors just announced that 8 out of 10 people believe now is a good time to buy. If they believe it is, why aren’t they? It is because of negativity of the national media and how it is portrayed to the consumer.
So, no matter whom you believe or where the housing market is going there are opportunities for success
- Interest rates are better then phenomenal
- Prices are stable in most of our making it attractive to buy whether for owner, occupants or investors
- Speaking of investors – the rental market is strong and prices will comeback which is what long term investors are looking for when buying real estate.
- The housing market will rebound and both prices and rates will increase so we have a limited timeframe in which to take advantage of this opportunity.
Fannie Mae just announced that they are going to be looking into the foreclosure practices of many of the lenders they service which means that the release of their properties onto the market will be delayed and so will settlements. The question is – for how long. We will have to wait and see as well as note how many properties will be affected. Stay tuned for more details about Fannie Mae.
Oh! One more good piece of news came across the wire…New home sales are also up 6.6% – good news is here and will hopefully continue to come.
Think long term, plan long term and educate long term and you will be successful long term. Get it? Got it? Good!
Stop the Madness!
The good thing about the weekends recently is that we don’t get emails from the real estate news services in which we subscribe. It seems all the news we read about are comments on the real estate market that are negative, speculative and do nothing but contribute to the decline in consumer confidence in the housing market. The sweeping generalizations about the National market do absolutely nothing to reflect the news about our local market in Northern Virginia. As we all know, you can make the numbers say what you want – the national home pricing index set by Clear Capital dropped 5.9% in the last two months as reported by DSNews.com but it means absolutely nothing to the Northern Virginia market except uncertainty and continued fence sitting by both buyers and sellers. Let’s look at the reality of our market over this same timeframe. Over the last two months as the majority of the country has seen a decrease in equity we have seen our average sales prices over the same period of time increase from $333,502 to $334,274 as reported by MRIS through RBIntel.com. The question is, why isn’t this being reported about Northern Virginia?
Granted, our market isn’t like it was in the period from 2004 – 2007, and it never will be like it again. We are in a “new normal” market. Inventory levels are stable, prices are stable, mortgage interest rates are at historic lows and people are still buying and selling houses. Do we have pockets that are exceeding expectations? Yes. Do we have areas that are underperforming? Yes. Do we have foreclosures in our market? Yes. Are they having a significant impact? For the most part, no as they only represent less than 6% of houses for sale today. Do we have short sales? Yes. Do they have a significant impact on the market? It depends. Some areas have more than others, Arlington County has a very low percentage versus Prince William County that has a higher percentage of distressed properties for sale. Therefore, it is extremely important to consult with a Realtor that knows the trends and knows the market – I challenge you to become that Realtor. There are opportunities in every market, especially this one. In 5 years and beyond people will say, “Do you remember when rates were at 4%? I should have taken advantage of it when I could”. Do whatever it takes to not be that person or have clients that are that person. Get it? Got it? Good!
Now, go sell something!
Top Producers Chime in on the Market
As you have read in the past, the Platinum Group meets once a month to discuss the market, trends in the market, share ideas and to network. These individuals earn in excesses of $250,000 per year and have been meeting for over 5 years. Basically, they are the best of the best. Here is what they had to say about the market this month.
Foreclosures: the robosigners and paperwork/clerical errors had many banks jumping on the bandwagon putting a moratorium on foreclosures in all 50 states whether they are judicial or non-judicial states. Basically, this policy is wrong and they should continue with the foreclosures in non-judicial states and clean up their act and their process in the judicial states.
Foreclosures may be stopped temporarily going forward on properties under contract in our area. Be in touch with the listing agent and title companies on where the house is in the process and see if it is going to close or be stalled for any reason. As always, stay ahead of the curve.
Be careful of prices going forward because of the onslaught of foreclosures coming. Right now, we in Northern Virginia, have one of the highest 90 day late delinquency rates in the country. Many of those are people who stopped paying because they are in short sale but at least 50% of those, if not more, won’t close as short sales and will come on as foreclosures later. We had a historical month of foreclosures in September and these homes will come on the market soon so get price reductions today to get them sold as we are going to see a price reduction of 5 -20% over the next year – potentially. There is water behind the dam, it is only a matter of how much water they let over the dam as to how it will relate to where prices will fall. The question is who is going to be affected? We still have pockets and price points where there are multiple offers and escalation clauses. Our market is hyper local – you have to educate your buyers.
New home sales are down – builders aren’t making money – at least the production builders we are working with now. They are not accepting offers on houses because they say they aren’t making money at the lower prices and then a few months later they are dropping their prices to where offers were previously. They are just trying to hang on at this point.
Interest rates will not increase for the foreseeable future – market can’t sustain it and we don’t have inflation and rates and inflation go hand and hand.
What is happening with short sales? An approval came through with 8 days to close after working with Wells Fargo for over 1 year…some have had no issues, even with 2 mortgages…no zero deficiency judgments now, banks want money at the table or are getting deficiency judgments (Litton Loan Servicing, Wells Fargo – 2nd trust, PNC, and Aurora, Astoria, Bank of America and Wells Fargo all wanted cash at closing).
What Steve Harney said: Strategic defaults make up 31% of all distress sales. Additionally, now is the right time to be a buyer considering where interest rates are today – buy because it is a home, not an investment. Don’t worry about what may happen to prices in 6 – 12 months, if the house is right, buy today. If you are a seller, it looks like prices may come down in the future so reduce today to get it sold so you are competing with foreclosures that may enter the market. Either way, now is the time to get into real estate!
How is our market otherwise? Houses are selling and buyers are buying – now is the time to get out in front of people to get it done! Get it? Got it? Good!
Now, go sell something!
Lists, surveys & reports…oh my!
It seems all the rage lately has been lists such as Top Reasons to…Top 10 Foreclosure Markets…Top 7 Markets in Mortgage Delinquencies, etc. and people are asking where Virginia ranks in these types of surveys. These lists don’t always rank all states or areas but many times these lists rank the Top 10 and Bottom 10 and Virginia has not been in them. This tells me we are in the middle of the pack – until now. I recently read a report on Real Trends about Corelogic reporting housing prices remaining flat and guess what? Virginia was number 5 in price appreciation – woo hoo! We made a list and it was for a good reason! Read the report here.
Here is other real estate information making the news…Foreclosures are up 25% on the year. Banks took back 95,363 properties in August – nationwide – making it the 9th month in a row foreclosures increased on an annualized basis. Since December 2007, 2.3 million homes have been foreclosed on by banks and there are at least 1 million more to go. Yes, we will be impacted by foreclosures but it will be to a lesser extent than the rest of the country which is good. It will bring inventory on the market in lower price points – which is needed – and it will help first time buyers enter the market as many of these homes are made available to owner occupants for the first two weeks the property is marketed.
Regardless, all real estate is local and it is our job as professionals to get the word out prospective home buyers and sellers that we are in one of the best markets in the country and people are buying and selling homes in Northern Virginia. Get it? Got it? Good!
Now, go sell something!
Scott's Motivation and Real Estate Market Updates 
