scott mcdonald

Why has the real estate market slowed down?

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Why has the real estate market slowed down?  In my opinion, it is a combination of a few factors.

Why has the real estate market slowed down?

First and foremost, it is interest rates.  Over the last year, rates have risen nearly 1.5%.  A lot of people say they can’t believe with rates so low, how people cannot qualify for a mortgage.  Well this kind of increase will remove buyers from the market regardless of where the rates start and where they end up – 3.25 to 4.75 or 8 to 9.5.   An increase in interest rates like this is going to have an impact on the market.

Also, house prices have increased by over 17% the last 3 years in our area.  This price increase has also helped to eliminate buyers from the market.  Higher prices in any area of our lives – cars, restaurants, food, etc. will eliminate buyers – it is a natural fact.  Couple this with the interest rate increase and we have a slower market.

Additionally, there are fewer homes to choose from in the lower price points as well making it difficult for buyers to even find acceptable housing to purchase.  There are only 1,210 properties priced below $300,000 in all of Northern Virginia and only 271 are single family homes, the rest are town houses or condos.  If there are fewer options for entry into the market, there are going to be fewer sales thus slowing down the market.

The upcoming finance reform with QM, QRM, and Basel III the first of the year together with the easing of QE 3 leaves a lot of speculation about the future of rates and sequentially, the housing market.  Keep a keen eye on these developments to measure their impact.

So is the sky falling Chicken Little? 

Why has the real estate market slowed down interest rate increase

Well, let the numbers tell the story.  The housing market today is not substantially different than this same time last year and everyone was excited about the market then.  Funny how the brisk spring market with low inventory, low interest rates and multiple contracts has clouded the vision of some people.  Inventory is up just 6% over last year – not a terrible or scary number.  Sales are up in a week to week comparison to last year by 3.5% – a pretty good increase, right?  The 2.1 month supply of homes is virtually the same as last year’s 2.0.  Distressed property inventory has dropped 40% – which is a fantastic number.  This has resulted in a majority of the increase in homes for sale being arm’s length transactions – another good thing.  The last number to mention is properties that settled the last 30 days.  We are up 14% over last year indicating we are actually experiencing more sales.  So, if looked at from a long term perspective, our real estate market is actually doing pretty well.  All this being said, we still need to price properties properly as well as get them in the right condition to get them sold for our clients.

Keep a positive outlook on the market, good things will happen.  Now, go sell something!

Scott MacDonald

RE/MAX Gateway, LLC

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How are Interest Rates affecting the Northern Virginia Real Estate?

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Scott MacDonald of RE/MAX Gateway offers valuable information as to how interest rates are driving the real estate housing market in his video blog Scott’s Market Minute.

Sellers are urged to price houses competitively to sell fast. For a free Home Market Analysis, contact Scott MacDonald (703) 652-5777  There’s still time to get your home listed for sale!

Buyers, rates are climbing, now is the time to buy a home! Email Scott for a free optimized homes for sale search list. scottmacdonald@remax.net

Help! Don’t allow Congress to hinder housing recovery!

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The Northern Virginia Real Estate market continues on it strong pace but there is legislation that can bring this to an end – and fast.  The legislation is known as Qualified Residential Mortgages.  NAR believes Congress intended to create a broad QRM exemption. Evidence shows that responsible lending standards and ensuring a borrower’s ability to repay have the greatest impact on reducing lender risk, not high down payments. Proposals that require high down payments will drive more borrowers to FHA, increase costs for borrowers by raising interest rates and fees, and effectively price many eligible borrowers out of the housing market.

A provision in the Dodd-Frank Act requires that financial institutions retain 5% of the risk on loans they securitize. The purpose is to discourage excessive risk taking and create strong incentives for responsible lending and borrowing.

Congress came up with the QRM concept to ensure that banks were only putting up ‘safe’ loans for securitization. NAR supports this goal, but in practice, regulators have come up with draconian parameters for what constitutes a QRM.

NAR feels this will not only affect buyers, but would also affect the ability of home owners to sell their homes, since there would be fewer buyers who could qualify for home ownership.

NAR wants federal regulators to honor Congressional intent by crafting a QRM exemption that includes a wide variety of traditionally safe, well underwritten products such as 30-, 15-, and 10-year fixed-rate loans; 7-1 and 5-1 ARMs; and loans with down payments in the 5% to 20% range with PMI, where required, and with other features found in low-risk loans such as no prepayment penalties or balloon.  Implementing a new rule requiring a twenty percent or higher down-payments would stop the housing recovery in its tracks and we can’t have this happen to our fragile recovery in the housing sector.  Please contact your elected officials today and have them stop this in its tracks.  If you are interested in receiving a letter to forward on, please let me know.

 

I would like to thank NAR for allowing me to take their words and post this for you.

 

Now, go sell something!

Tidbits from the Spring Economic Update…

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Yesterday was the Spring Economic Update 2011 for NVAR and as usual, it was chock full of information on not only the national economy but the local economy as well.  The featured speaker was Dr. Stephen Fuller and he gave his insight into what could expect on our way out of the recession and on the road to recovery.

35% of the local economy is the federal government but it is not driving our growth as it did from 2000-2010 when it was a much larger factor.

The remaining 65% of the economy is driving our growth even though it doesn’t have the bank roll of the gov’t it is still good.  We can’t print money like the federal government.

Still a jobless recovery – efficiency and technology recovery – more productive workforce and is stronger than everyone expected.  We are on track for a recovery for similar to 1991 – 52,000 jobs lost in 2009 we lost 50,000 but tracking in terms of GDP in the 2009 recession.

Differences 1/3 GDP was manufacturing – today is 10% of GDP; Global Economy today; flexible workforce – people work from home; Stimulus money helped us as well; Expansion is wide spread & broad based – educ/health, professional & business serv, leisure and hospitality, and manufacturing are leading the way.

Credit card debt is up 2 months in a row – savings are down as well.  People are spending – consumer confidence is up – February not as bad as last year in terms of weather so people were out spending.

Manufacturing up 19 consecutive months – non manufacturing up 17 months – these are both better than expected.  New orders continue to come in as well.

We are doing same amount of work with 8,000,000 fewer workers since recession began. ¼ of workers have been re-employed then unemployed again.  Unemployment numbers are down and are coming down faster than expected but may be misleading.  Unemployment is at 8.9% now was at 9.5% at the beginning of the year and is projected to be 8.8% by the end of the year.

Consumer’s perspective on the economy – they believe future is better than the past and are close to optimistic but the present situation is not as good as expectations.

New home sales, although at near historic lows, are on the road to recovery.  Next year will be better and their increases will come in the last quarter of this year.

Federal Reserve is expected to increase the Fed Rate by ¼% and as a result, mortgage rates will increase.  Expect rates to remain low through the fall buying season then increase after that time frame.

Energy prices, taxes, and rates are all going to go up.  Oil prices will rise – payroll taxes will go up – interest rates are going up as well.

No big bubbles on the horizon in the economy.

Locally, we are in recovery with a good trajectory and gaining altitude.

Jobs are coming back but not as much as was predicted by the labor bureau.  January was strong for job growth.  We have gained the most jobs out of the top 15 markets – Washington area and Boston are the only 2 markets to increase and we doubled them in creation of jobs.  This January was the first January in we did not lose jobs in the construction sector.  Over 40,000 jobs were lost in this sector alone.  We have 4.7% unemployment rate in NOVA – Arlington is 4.3% and is the lowest in the state.  Non-local service businesses will help pick up the slack of the government not expanding.  These are businesses are businesses that don’t need to be here but want to be here – not tied to the government.

The economy is expanding without the aid of housing – 19% of GDP is the housing sector and all that goes along with it.  Typically housing is the juice that fueled the recoveries in the past – this recovery will not see housing contribute until 2012/2013 – we saved the best for last.  Pent up demand in move up market will help drive the recovery in the future.  NOVA is driving the housing recovery locally.  If we average 6%, which is predicted, then we will get our numbers/values back in 3 years.

Forecast and challenges in 2011 for housing

  1. Low consumer confidence – fear about jobs/economy
  2. More difficult lending processes
  3. Lack of urgency
  4. Foreclosures remain in some jurisdictions
  5. Shift in housing preference – will affect builders more than re-sales but buyer’s preferences will dictate what will sell
  6. More apartments will be built – a few condo projects are on the horizon – new builds will enter market near the end of the year, beginning of next year

We have a shortage of housing – 705,000 jobs are needed to fill the demand we have in our area which is 220,000 households that we will need that we don’t have currently.  The future is bright for us in housing.  Public policy will be our challenge – gov’t wants the jobs but not the houses because houses mean police/fire & rescue, schools, etc.

Policy-cra.gmu.edu is where you can find PowerPoint slides

It is more important now than ever to stay up to date and informed as the market continues to evolve.  More changes are on the horizon with Fannie Mae and Freddie Mac, pricing, short sale reforms and much more I am sure so read, attend seminars and go to trainings.  Get it?  Got it?  Good!

Now, go sell something!

 

 

Cha, Cha, Cha,Changes….

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The real estate market continues to change. Loan programs are changing, rules and regulations in lending are changing, interest rates are changing, prices are changing, activity levels are changing and it takes a professional to help consumers wade through the complexities of the market and give their buyers and sellers the right advice when dealing with real estate. Yes, there are agents who have a license, who can show properties, write contracts, attend inspections and settlement but it takes a professional to explain trends, understand data, and give the right advice to people when buying and selling homes.

The internet has helped the consumer find information on real estate – what is for sale, neighborhood information, school information, crime reports, and if they can dig deep enough, sold data through tax record information. But does this really tell the whole story? Were points or closing costs paid by the seller –if so, how much was paid? What was the property’s condition? Was it a distressed property or not and how did that play into the final sales price? Were there multiple contracts on the property? There is so much more to the story – tell your clients about this information that is not available on the web. The internet provides information – as a professional, you need to provide insight. If you do, you will demonstrate your value and get paid what you are deserved each and every time.

To be able to tell someone now is a good time to buy or sell a home takes market awareness. Where are interest rates today and why? Will they be rising or falling and why? How does this impact the decision on when to buy or sell and why? What is happening with FHA condo approvals and how will it impact both buyers and sellers? Is activity up or down in the market and how will impact pricing? Is activity up or down? How does the agent know? It isn’t knowledge that is power it is the use of knowledge that is power. Use your knowledge to empower people to make the right decisions.

Get involved in the market – preview houses, visit new home sites, network with other leading professionals in our business to get the pulse on the market. Now is the time to make yourself an indispensable asset to your database and create clients for life. Get it? Got it? Good! Now, go sell something!

Hello? Is it me your looking for?

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Hello???  Where have all the foreclosures gone?

As we enter 2011, our area is poised for a great year in real estate in the Washington Metropolitan Area.  Inventory levels are down, we have jobs, interest rates are expected to remain at historically low levels, and we had the second highest level of price increases in the country last year.

We mentioned inventory levels are down, especially foreclosure inventory.  Why are foreclosure levels down now?  It started with the “robosigning” of documents in judicial states back at the end of October beginning of November timeframe when banks and the Government Sponsored Entities put a moratorium on foreclosures to review their processes and ensure checks and balances were in place in their foreclosure proceedings.  Then, we hit the holiday season which typically signifies a slowdown in the process-yes, the banks and GSE’s have a heart.  It will be interesting to see when the foreclosures will be released for marketing and how – all at once or methodically – and then we will see how it will impact pricing.

We have the jobs.  Of the top 15 metropolitan markets, we have the lowest unemployment rate in the country.  Major corporations have relocated here and are expected to continue to relocate here because of the education level of our workforce, multiple international airports, the cultural diversity, the Federal Government, tourism factors and so much more.  In addition, CEO’s under 30 rank our region in the Top 10 so job losses are less likely to occur here locally.

Also, it is projected that interest rates will remain below 5.5% for 2011.  In order to continue to see a rebound in the housing sector, rates must remain low.  In response to this plea, the Federal Reserve announced it would keep the Fed rate at 0-.25% and have agreed to purchase $600 Billion in mortgage backed securities.  At this time, it would have a devastating impact on the recovery if rates were to escalate substantially.

These factors contribute to more stable prices and in some cases, increasing prices.  It is area specific with some neighborhoods seeing huge price increases while others are seeing decreased prices.  It is so important to contact your real estate professional to learn more about your neighborhood.  But it is a fact; low supply and high demand lead to increasing prices.  Many purchasers who bought in the last 2 years have seen an increase already.  We don’t expect huge increases like we saw in 2003-2006 but we expect to see moderate increases, which is healthier for the economy and housing sector.  Another contributing factor to our increase in pricing is that international investors see the value in our region and in 2010, we were ranked second only to New York City in foreign investment both globally and nationally.

What else shall we keep an eye on this year?  The restructuring of the Mortgage Interest Deduction, unemployment nationally, potential terrorist threats as we approach the ten year anniversary of 9/11, foreclosure activity nationally and if we can get a streamline approach to short sales.  Stay tuned into what is happening so you too can have a successful 2011.  Get it?  Got it?  Good!

Now, go sell something!

It’s all about your peeps

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Lately there have been articles written about diversifying your business – well I say, “Go with what you know”.  It is time to focus on your database, the management of your database and its growth. 

  • The question is, why try to get into foreclosures?  This aspect of the business is already overwrought with Realtors, is difficult to penetrate and in many instances can be very expensive as expenses need to be covered until they can be reimbursed by Fannie Mae, Freddie Mac or the banks. 
  • Why begin mass mailing campaigns?  They are expensive, time consuming, produce a relatively low return on investment plus it takes years to establish yourself as the expert. 
  • Internet campaigns are time consuming and have a relatively low return on investment plus the leads can take years to incubate.
  • People – much like yourself – hate to be cold called, so why do it? 
  • Door knocking is for Girl Scouts, not professional Realtors.

So let’s focus on who you know and how they can get to know you better so you can get referred more business.  How can people in your database get to know you better?  It can be summed up in one word – consistency. 

  • You need to become consistent in your mailings to your sphere.  The mailings need be informative to the recipient – their house value, interest rate information, neighborhood information, area trends, etc.  Also, keep good notes on your members so you can send them coupons to their favorite restaurant, information about camps for kids, etc.  Remember, it is about them – not you!
  • You need to be consistent with your calls.  Call them on their anniversary, the anniversary of the purchase of their home, holiday greetings, birthday wishes (remember I said to take good notes on your members?), summer vacation calls, your neighbor just listed calls, or just checking in calls will all work – do it consistently!
  • You need to provide great client events.  Typically one for the kid oriented groups and one for the adults.  Ball games are great, bowling nights, Super Bowl parties, and Casino nights – all work.  Get creative but just do them.
  • You need to invite to participate in charitable events.  If you don’t host one – start.  If you “don’t have the time”.  Get involved in a charity and volunteer.  Your database needs to see that you are passionate about something other than business.  By giving back – you will get back!
  • Network – consistently to add new people to your database.  Join a BNI, referral share group, chamber, hold business to business meetings, join an association, coach youth sports, and get involved in something to allow yourself to meet more people!  The only way to add to your bottom line is to add people to your database.

Basically, you need to spend the year focusing on your database – not other avenues of business to get you long term results.  Get it?  Got it?  Good!

Now, go sell something!

Don’t rock the boat baby…

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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!

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Images 
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!

Don’t miss out on the American Dream!

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Why is now the time to pursue the American Dream and buy a house in today’s market?  The reason is because many of the fundamentals of home ownership remain strong in every market – even today!  Let’s review, shall we?

  • Owning a home provides stability in you and/or your family’s life.  You are not subject to having to move on the whim of your landlord and you can start to build “roots” in a neighborhood.
  • You become part of a community hence building upon the theme of pride in ownership.
  • Today’s interest rates are at historic lows making payments extremely affordable.
  • Prices have bottomed out and are on the rebound in many areas – get on board before prices and rates increase again.
  • The home becomes “yours”.  You can paint, re-carpet, renovate, landscape and even more without approval from a landlord and the improvements add value to your home, not someone else’s property.
  • Home ownership is a wealth building strategy – each payment decreases your loan balance increasing your equity in the home – it is a built in savings account!
  • The tax savings and benefits are a huge benefit to your financial bottom line.
  • You choose when to move – not someone else.
  • Home ownership strengthens our economy – each home purchase touches over 20 industries and creates over $60,000 in revenue
  • The housing sector represents nearly 20% of the US’s GDP and helps drive our economy
  • And best of all – it is the American Dream!

As we know, all markets are cyclical and we have been in a down cycle for real estate for over three years now – the market will come back – it always does.  Now is the time to take advantage the opportunity afforded you today – just look at the graph…

                           Now…                                   Later…

Sales Price           $400,000                              $360,000 (assumes 10% drop in prices)

Loan Amt             $320,000                              $288,000

Rate                  4.375%                                  6.125%

P&I                   $1,597.71                             $1,749.92

Save      $152.21 per month by buying now

Save      $18,265 over the next 10 years

If you are a savvy buyer, now is the time to make the move.  Get it?  Got it?  Good!

Now, go buy something!