The on-air interview

Here is the on-air interview with John Aaron of WTOP (click on logo at left to listen the entire interview) where we discussed the effect on our local market of the recent $26 Billion settlement between the state attorney generals and 5 banks. This was a follow up to my blog post of February 12. You can read the entire blogpost by clicking here.

For our area specifically Maryland will receive roughly $960 million, Virginia roughly $480 million and Washington DC roughly $40 million. Those homeowners who used these five banks are eligible.

The intent is to provide some financial compensation for those homeowners who were forelosed on AND to assit those homeowners who risk getting foreclosed or having to short sell their home. These homeowners may find different programs that will assist them in various ways such as loan modification, refinancing and more.

If you used one of these banks and think you are eligible you can call one of these toll gree numbers to get more info:

Ally/GMAC: 800-766-4622

Bank of America: 877-488-7814

Citi: 866-272-4749

J.P. Morgan Chase: 866-372-6901

Wells Fargo: 800-288-3212

So how will this affect our local market? In my opinion any program that successfully keeps homewoners from defaulting and getting foreclosed on is going to have a positive effect by keeping additional distressed sales from hitting the market. The extent of this effect will remain to be seen and will depend on the banks and the states ability to get the word out to the affected homeowners. Additionally the ability to follow through effectively will also determine how this will impact our market.

Some argue this settlement does not go far enough while others applaude it. This is a story that I think will warrant revisiting over the next twelve months. I’m cautiously optimistic but will refrain from coming to any final conclusions for now.

I had to think about it for a while and realized that while there is not a blanket answer to this question in certain situations the answer is a resounding yes. I’ll explain in a minute but if you would like to view the piece Jessica ran on Channel 9 simply click play on the video below.

For many folks downsizing makes perfect sense from a lifestyle perspective. Empty nesters are the most obvious group, those folks whose kids have moved out of the home and are now left with a house that is much larger than they need. They don’t need so many bedrooms and baths, the big back yard, the extra utility cost, maintenance costs etc. Many of these folks may also be getting to that point in life where getting up and down the different flights of stairs is getting more and more difficult. For many the barrier to moving to a smaller home is an emotional one. There are so many wonderful memories in the home that moving is just too hard. Some think it will not make sense financially and perhaps waiting it out will be the best approach. To these folks I say that now may be the best time ever to do so.

Let me explain. Right now and I mean right now (speaking from personal experience and through the experience of my colleagues) we are noticing very active markets with huge pent up demand of buyers for single family homes in what are considered “good school districts”. In some cases over the past 30 days we’ve seen multiple offers. If you happen to be an empty nester living in one of these homes you will be able to sell your house very easily for top dollar. Now the beautiful thing for you is that as a buyer you no longer care about buying in any specific school district because your kids have long since graduated.  This opens you up to looking in pretty much any geographic area your heart desires.

Some neighborhoods and types of housing have taken quite a hit while your single family home has stayed quite stable pricing-wise. You may want to consider ramblers (single level homes) that will eliminate the issue of stairs as you age or better yet condos that not only afford single level living but also eliminate most maintenance headaches associated with single family homes. I’ve seen a growing trend amongst empty nesters, over the past 10 years, of moving into Washington DC to neighborhoods where one can walk to restaurants, shops, theaters and more.

By selecting to move to certain neighborhoods or types of homes that fit your new lifestyle you may find that you are buying at prices close to half what they were at the peak of the market while selling your current home at a fraction of that discount. So in my opinion in certain situations not only does downsizing make perfect lifestyle sense but also economic sense.

The on-air interview

Listen to today’s On-Air interview with Jon Aaron of WTOP where we discussed my blogpost from Thursday on Shadow Inventory and whether or not now is a the right time to sell. Click here to read Thursday’s blogpost in it’s entirety. To listent to the interview click on the WTOP logo at left.

To put it very simply, if your home is in an area that is anticipating a large number of foreclosures to come on the market then I would plan on getting your home on the market as soon as possible. If you are fortunate as some in our area will be and aniticipation of release of the shadow inventory is low then congratulations you can breathe a small sigh of relief. BUT understand that many buyers will not distinguish the subtelty of the differences in zip codes due to lack of information and will most likely lump the entire market together. So you may want to factor in the effect that the news will have on buyers psychologically in general.

To better understand what I’m talking about look at the chart below from USA Today showing the buildup of Shadow Inventory by state (click on the chart to make it bigger):

What you quickly see is that those states that have not frozen the supply of foreclosures are experiencing the lowest buildup of shadow inventory even though some are actually experiencing the highest number of actual foreclosures. Other states that have a relatively low number of foreclosure properties are experiencing a huge number of shadow inventory buildup simply due to the fact that they have not allowed foreclosures to hit the market for a while.

You’ll note our area is in the middle. What one needs to understand is they are averaging out the numbers across the state and when you dig deeper by county and by zipcode the reality can be very different.

RealtyTrac tracks these stats in a very granular way (right down to the zipcode level). As a seller (and a buyer) you will want to research where your particular zipcode falls prior to making any final decisions. So is it the right time to sell. All other considerations aside (ie we need a bigger home, we need to downsize, we’re moving out of the area for a new job etc) generally speaking the answer is definitely. Get on the market now while quality inventory is low and buyer demand is high. You’ll be glad you did.

I have some more charts below for you to review but if you are thinking of selling and need assistance in better understanding what is exactly going on in your specific neighborhood just email me, give me a call, or click here.

The chart on left above shows completed foreclosures which is deceiving in the sense that it could lead one to believe that the number of foreclosures is dropping, but we know that’s just due to the build up of shadow inventory. The chart above on the right shows clearly that the number of completed foreclosures has been on the rise. (again, you can click on the charts to blow them up).

However, before one panics it’s important to understand what is going on in your specific area and for that I’m including an example of the type of charts RealtyTrac offers below (click on them to enlarge). They provide this information all the way down to the zip code level. What’s your zipcode doing?

The explanation. Housing affordability in our area is at a 30 year high. That means that when factoring home prices, cost of mortgages along with income housing has not been this affordable in over 30 years, more specifically since 1971. But to make things clearer and more relevant to our Washington DC metro area have a look at the two charts below.

Chart 1

Chart 2

Note that from chart 1 that the Case Shiller Pricing Index for our area shows that today’s buyers are purchasing at pre-bubble 2004 prices BUT at a major differnce in cost (see chart 2). While average mortgage rates in 2004 were around 6.29% they are now around 4%. 

Look at what a huge difference that makes on the monthly cost of homeownership (roughly a savings of $560 per month or in this particular example roughly 20% cheaper). So is it a good time to buy? What do you think? If you agree with my assessment and are looking to buy give me a call.

More to come soon on whether now is a good time to sell or should one wait (the other question I keep being asked these days)

The on-air interview

On Sunday January 8th I talked with Rosemary Frisino Toohey live on the air about the new changes to the Regional Contract which became effective January 1, 2012. Specifically we talked about the fact that all homes in our area are now being sold as-is. You can listen to the entire interview by clicking on the WTOP logo to the left here.

You can also read more about the topic from my blogpost yesterday by clicking here.

In order to understand the change we first have to understand how the property condition clause pre Jan 1, 2012 worked. Unless specifically disclosed that a mechanical or electrical item was not functioning properly and that the seller intended to convey that faulty item as-is, the seller was obligated to deliver the property at settlement with all these items functioning properly. So as an example, if the ice maker in the refrigerator was not working and the seller disclosed that the ice maker would convey “as-is” then she would be under no obligation to fix the ice maker. However, if the seller did not disclose this fact she would be obligated to fix the ice maker prior to settlement. There are many items within a home that fell under this category and were the source of many issues between buyers and sellers. One cause of major debate was the idea of “normal working order”. In other words these items had to function in “normal working order”. Obviously that’s a relativer term. For example, one party may find a heating system that can only get the house up to 68 degrees perfectly acceptable whereas another party would consider the heating system broken if it could not heat the home up to 80 degrees.

All that is behind us now. The contract now reads that the home, in its entirety is sold “as-is”. That means the seller has zero obligation to fix anything other than what the buyer may request from his home inspection. In other words, everything is now negotiable. It’s very important to understand that sold as-is does not mean the buyer can not ask for repairs. Nothing has changed here. A buyer can still have a home inspection and ask the seller to fix things but now all requests for repairs are negotiable.

For those familiar with the “as-is” clause will know that the second part of that is “as-of” meaning as-is as-of a certain date. In other words you need to have a snapshot of what the condition of the house is on a specific date and then compare that to the condition of the house on the date of settlement. Remember, if anything  breaks between these two dates the seller is obligate to make repairs to deliver the house in the same condition it was on the “as-of” date. So again in our ice maker example. Lets say the ice maker “was” working when we went under contract but was broken the day we performed our final walk through then the seller would have to fix the ice maker.

The “as-of” date is negotiable. However, in my opinion (Personally speaking) I will always recommend that one put into the contract the as-of date being “as-of” the date of a home inspection. Why you ask? Because how else will you be able to document the condition of the home? A home inspection report will give you some documentation in writing as to what was or was not working. Any other date will simply be a war of words – he said, she said… For example, Buyer says, “Hey the ice maker doesn’t work now and I remember when we saw the house in the open house there was ice in the freezer”.  Seller responds, “You must be thinking of another house because the ice maker has not been working for 5 years now”. You see the dilemma.

So charge ahead with your home sale or home purchase but be aware that the new contract will cause you to want to do things a little differently in 2012. My recommendation – have a great agent at your side who will make sure these changes work for you, not against you.

The on-air interview

In years past it’s been common practice to take homes that have not sold off the market during the holiday season (defined as that time between Thanksgiving and New Years) and to try again in the Spring.  This year the word on the street is that perhaps that’s not the prudent choice. (I discussed this live on WTOP with John Aaron. Click on the WTOP logo at left to listent to the entire interview.)

Fellow agents are noting that buyer activity seems to be much higher in the past couple of months than in months and years past but that inventory has not kept up with the increase in buyer activity. The thought on listing agents minds is that come spring there will be added competition from new listings vying for these same buyers. So rather than pull listings until the Spring many are advising their sellers to get more competitive and take advantage of the increase in buyer activity and decrease in relative new inventory. Sellers can get a competitive advantage through pro-active activities such as price adjustments, addtional market prescence through advertising and marketing, home modification via staging,  painting, renovating etc.

This brings me to my next topic. I’ve noticed recently that many of the homes that have been languishing on the market suffer from a lack of WOW factor. What do I mean by that? Quite simply, if you’ve been looking at homes lately you will certainly have seen a home that for one reason or another made you want to say WOW! That wow may have come from an incredible kitchen, a fantastic view, huge windows that let in tons of light, decorating that was impeccable and many other such possible items.

So how do you create a WOW factor in your home?  This may or may not be obvious. Start first by thinking what in your mind is your home’s best feature. Maybe that was the reason you bought the home in the first place. It might be your back deck that overlooks a to die for view that made you fall in love the house. Maybe it was the master bedroom suite.  Whatever it is/was highlight that both in yout marketing and staging. You never know, the next owner may fall in love for the same reason.

If the wow factor is not so obvious then you’ll have to think about ways to create a wow factor. You can start by looking at your home from the street. What do people see first? Does your home have curb appeal? Does it make a good first impression? Oftentimes you can create great wow factor right at your front step…and for not a lot of money.

What about when people first enter your home? Is there a strange odor? Is the entrance/foyer dark and stuffy? You’d be amazed how good lighting and a fresh clean feel impacts would be buyers. What about your furniture? Is the layout helping you make the house look bigger and flow well or is it making the entire house feel cramped and disjointed. Restaging your furniture can change the entire feel of your home. You may want to seek help with this part. Some sellers can’t re-imagine their homes since they’ve been living in a certain way for so long.

So this season work on creating your home’s wow factor and rather than being left out in the cold you’ll be able to say you got your home sold!

These FHA backed loans will enable buyers to put as little as 3.5% down on a the purchase of a home. While I know to many this sounds like a benefit just for the upper echelon of wage earners keep in mind that our area is ranked pretty high up on the list of costly housing markets.

Also, keep in mind that many in this price point are either move up or move down buyers. Each segment of the market is dependent on the other segments of the market. What I mean by that is those sellers who are selling to first time buyers are moving up to their next home which most likely puts them in this sweet spot. If they are unable to afford to move up they will not be able to sell their home which would dry up inventory for first time buyers. By the same token if the sellers of these mid-range homes have buyers who cannot afford to buy their homes they in turn cannot move up or down for their next purchase.

So in essence both the upper bracket market and the first time buyer market are heavily affected by the ability and affordability the mid-market is experiencing. I applaude Congress for doing the right thing. It was not an easy decision but in personal opinion it was the right one.