tax credit

Answering the ‘Not So Simple Questions’

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I was recently asked by an old friend, an innocent question
in his mind I am sure but as you can see from my answer it is anything but a
simple question.  He asked, “How will the
market be in the spring?”. 

Here is the response: 

You ask an interesting question which requires me to pull
out my crystal ball.  Here goes my best
guess.  There is a lot of uncertainty of
what can happen in the spring.  There is
speculation that the extension
of the Tax Credit will pass and be offered to all buyers (with
restrictions) through April 30th, then reduce quarterly through the end of the
year until it is gone.  This measure will
help sustain momentum that we currently have in the market – especially in the
under $400,000 market.  In all likelihood
it should pass this week.  This, as
previously mentioned will be good for our market. 

At this time we have very low inventory – it's down 54% from
this time last year.  It has been rumored
that foreclosures
will be released into the market by the banks – the question is, how many
are in NOVA and how will they be released? 
Slowly or just dumped.  If we have
a lot and they are released simultaneously, how far will prices fall?  We have seen the phenomenon of prices falling
with low supply and high demand – it is a true economic anomaly in my
opinion.  If they are released
strategically and are allowed to be absorbed by the market naturally, we will
continue to see a rebound price wise and have a healthier market.  Tying into this question is how soon will
they be released?  This supply and demand
aspect which is tied to pricing is also critical to the strength of new home
sales.  With the cost of land, builders
can’t build product and make money in many areas, they are “shut out” of being
able to build.  Until we see an increase
in prices, many builders will remain on the sidelines.  This carrot of foreclosures has been dangling
in front of us for about a year now. 
Stay tuned on this one as it may be a critical piece to our housing
recovery depending upon how it is handled.

Mortgage interest rates are low now but have slowly
increased upward the last few weeks. 
The government has committed to buy Mortgage Backed Securities through
next spring – to the tune of $1.2 trillion. 
Who will step up to buy these securities in the future?  If no one does, how high will rates go and
how quickly?  Additionally, it appears as
if we see the high loan limit of $729,750 stay at this level for our area, if
it doesn't, how drastically will it hurt the upper price points that are
already experiencing a slower market.

Right now, we have buyers looking for homes, we have low
inventory levels, low interest rates and loan programs to get buyers into
houses.  It is a great time to be in the
market.  Over the next few weeks, we will
see how things play out for the spring – beyond that will require a second
crystal ball.  Hope this helps!

An Enlightening Weekend

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As a Realtor, you never know who you will run into to discuss our business.  This weekend was no different for me.  I was invited to attend a political function for an incumbent who is attempting to keep his seat as a delegate for our area.  Of course, Chuck Caputo is the right candidate and the right person for the job and, for our area, we need him to be re-elected.  His views on education, business and transportation for our area far exceed his competitor’s opinions on how to continue to run our region and for us to stay the number one state to do business in 4 years in a row. 

But I digress, at this function I had the opportunity to meet Mark Warner and we discussed our local real estate market.  Our conversation included inventory levels, supply and demand challenges, trends in housing prices, profiles of our purchasers, as well as HVCC and the First Time Buyer $8,000 Tax Credit.  Over the last several years, we have discussed the need to know your numbers, and know the trends in our business and to have them ready to discuss at any time.  As a result of staying abreast in these areas, I was able to accurately convey why we need to address the HVCC issue but more importantly, the need to extend the First Time Buyer Tax Credit.  In our discussion, he told me he was going to vote to extend the credit!  It is a wise decision to keep the housing sector of our economy moving forward and to help continue to bring our country out of the recession.  When it comes to making the right decisions about our economy, we need to knock down political affiliations and work together for the common good.  Get it?  Got it?  Good.

Now, go sell something!

We’ve caught the 500 pound elephant…

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Fuller 001

The economy isn’t as bad as we think it is or as the media portrays it to be…especially in our Washington Metro Area.  Dr. Stephen Fuller from GMU’s Center for Regional Analysis spoke to our office today regarding the current economy in our area including unemployment and the state of the housing market…and of course his forecasts for the future.

The future is uncertain. It always has been and as it should be. We can only predict so much. So Dr. Fuller believes that in 2010 and 2011 the housing market in the Washington Metro area is going to be out of control good or in his words it’ll go “gangbutsters”!  That’s pretty optimistic considering the last batch of Alt-A loans (5/1 and 7/1 ARMS) are due to adjust in 2011, but he did say to that end that the majority of those loans have already gone into foreclosure.

Unemployment in our area is down. It’s up around the rest of the nation and according to Dr. Fuller will go up to 10.2 nationally by April of next year before we see it start to come down again.  As of this last month, there is a 3.5 point gap between the national unemployment figure and the figure in our region. He noted that as a country we are losing 200,000 jobs per month and in order to keep employment where it is currently, we would have to accrue 100,000 jobs per month – again, we are losing 200,000 per month.  Employment won’t return to pre-recession numbers until 2014. That’s a heck of a lot of jobs! And half of those job losses are in the retail sector.  Thanks to amazon.com and all of the other internet retailers that offer goods for discounted prices. Store front retailers can’t keep up, end up in bankruptcy and leave buildings and strip malls vacant along with any customer service that might have been associated with it.  Big box retail shopping centers may get rezoned to accommodate housing short fall – stay tuned.

Dr. Fuller did comment on inflation and whether or not it will happen in the near future due to all of the spending our government has been doing lately. Will we have to endure a hard inflation period to “pay it all back”? His answer is not likely.  Unemployment is a major factor affecting our economy, but it’s not enough to put pressure on the economy to spark inflation. He noted that manufacturers are not struggling as hard as they would be during an inflationary period. This is in large part because of all the products you can purchase online. They costs of  not having a physical store, employees, etc. allows for the lower cost product and thus more profit in the long run. Therefore, if they continue to produce the goods, they continue to sell, then inflation shouldn’t occur…but that doesn’t mean another recession won’t occur. Dr. Fuller said another recession is inevitable, but when is the question.

A recession is defined as a period of an economic contraction, sometimes limited in scope or duration or as Wikipedia says it’s when the GDP falls or when we have negative growth. We have experienced this negative growth for the past 18 months and things are finally looking upward.  As is the housing market!

The real estate market in the Washington Metro area is hot and soon to get hotter! At Gateway our sales are up 4% over last year, but our volume is down by 5%, thus showing that prices have come down quite a bit from last year. Dr. Fuller predicted that builders will start building more spec homes about springtime of next year. He commented that we need to have 25,000 new homes (not resales) to accommodate just the new residents in the Northern Virginia area, compared to 1 million nationally. Currently in our Northern Virginia market, inventory is slowing decreasing. This week we see 5,984 active listings on the market…that’s down 56% from this time last year. Just goes to show it’s a great time to sell and with the $8,000 first time home buyer tax credit and low interest rates, it’s also a great time to buy.

Interesting market update

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It is an interesting time in the market right now. For the first time in a long time, there are not a lot of changes in our market to report – it is the same ole story – which is kind of nice.   Over the last several weeks, we have reported shifts which were affecting our industry and we were on top of for our clients and agents alike.  Last month we talked about short sales, foreclosures and those trials and tribulations. Right now everything is flat in terms of news. The inventory levels are down, buyers are still out looking for homes, the hot price ranges remain hot and we are ready to help!

What makes me wonder is, is now the calm before the storm?  As we’ve been speaking about over the last several weeks, many questions have been raised that we cannot answer – yet.  Many of our questions include the short sale process, inventory levels, release of foreclosures by banks, and other concerns over distressed properties still have not been answered.  Additionally, we have impending issues we are dealing with such as the first times tax buyer credit coming to an end on November 30, …will that be extended with all of the billions of dollars being spent by the government?  When will interest rates rise…is looming on our horizon – how soon will that happen? Foreclosures are slowing being released…will they be released all at once and will that have an impact on our values?  How much can the government spend to buy mortgage backed securities against the Federal Reserve’s advice and how will this impact us going forward.  There are a lot of questions that need to be answered and only time will tell what the outcome will be for the housing market.  So, for now, there is nothing turbulent to write or speak about today.  All’s well that ends well I guess will be the theme of this month’s update.  Mortgage rates are great, buyers are buying, houses are selling, and we are still working to make it all happen for our clients.  Let’s hope we get more of the same going forward!

We’re moving on up!

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It is true!  The housing market is making its comeback.  Last week we reported sales of existing homes rose 3 consecutive months and that new home sales were up in June over 3%.  Well, guess what?  New home sales were up 11% in July!   This is more great news for us to “build” upon moving into the dog days of summer. 

What is the reason for this growth?  There are several factors in my opinion:  low rates, the right price point, multiple offers on existing homes, the tax credit and the market conditions.  As we all know, rates have been low for an extended period of time and according to Ben Bernanke in his economic update, they are going to remain low as a strategy to aid in our economy’s recovery.  Builders, banks and home owners alike have been reducing prices to encourage offers – well, it appears that the sale of the century for housing has worked and buyers are coming out of the woodwork.  As these buyers are making offers on resale properties and losing out to other buyers, the frustration has lead them to new homes – no multiple offers on to be builts!  As the tax credit has aided in getting first time buyers off the fence, it has also spurred activity in the move up market which is resulting in the increase in new home sales as well.  And lastly, the market has been decreasing for over 4 years – June or July of 2005 is when we earmarked the down turn in housing.  Additionally, as we all know, what goes up must come down and vice versa so it was about time for the market to change.  You can’t keep a good thing down.

The housing recovery is critical in so many ways to the general economy’s recovery – let’s keep the momentum moving in a positive direction by spreading the word.  Get it?  Got it?  Good!