The Stakem Report Housing Trends for Loudoun County by JIm Stakem

June 2009 – Market Update

If you compare the numbers from January thru May it appears that we are
in a stable market. The May numbers in all catagories are nearly equal.
Year over year average sales prices are continuing to narrow. The sales
volume is a little less but this is reflective of a small drop in the
number of transactions. The transactions may fall further in the future
as the number of bank owned properties is reduced thus reducing the
overall volume. The important number to watch currently is average
sales price, it would appear that the upper market is coming back and
it definately indicates a balanced market.

Average Sales Price 2008 vs 2009 : 35 KB

Number of Transactions 2008 vs 2009: 29 KB

Total Sales Volume 2008 vs 2009 (millions): 27 KB

Delays Can Hurt Buyers!

You are interested in buying a home this is a good time to buy but
there are serious considerations along the way. We currently have
depressed prices and record low interest rates and there has to be
someone somewhere who actually buys a home at the absolute bottom of
both but most of us aren't that lucky. We may be past the absolute
bottom, interest rates have risen sharply in the past few weeks and
could go higher. Check the chart below to see the effect of rising
interest rates.
Sale Price $600,000 Down Payment $120,000 Loan amount $480,000
Interest rate Monthly Principal & Interest 4.75% $2,503.90 5% $2,576.74 5.5% $2,725.39 6% $2,871.84
The difference between 4.75% & 6% is $367.94! This may not seem
like much on a monthly payment but the reality is that the 6% payment
has eroded your buying power by $60,000! That's huge! If you were
negotiating on a home and lost it because of a relatively small amount
of money you probably made a big mistake and possibly cannot afford to
buy it at 6%! Our interest rates are not that high but they are well
above 5% and some experts are predicting further increases. If we do
see price increases as well, home affordability will be dramatically
affected and some people who want to buy will no longer be able to.
Should you buy now? If you need to buy, I believe that the conditions
in our “Local Market” will not improve for buyers and more important
the downside risk is very small. There may be some further decline in
prices until we clear up the majority of the distressed properties and
then we will begin to see prices increase.

Sellers Market? Not Really!

Sellers just can't seem to get a break. Now that the market is moving
again, prices have stabilized, time on the market is down to three
months or less and the inventory is low. You would expect these to be
good times for sellers! You might even anticipate some increase in
value! There are a number of issues which continue to have a negative
effect on home values.
The first of these is the appraisal. Appraisers can't win. Just a
couple of years ago, when the market was hot, appraisers were giving
very liberal appraisals (at the bank's instruction) and when the
financial crisis occurred much of the blame was directed toward
“inflated appraisals” . The reality is that the banks wanted to make
the loans and they wanted those high appraisals. As always in life, the
pendulum has shifted. The financial institutions are being extremely
cautious and developing very conservative guidelines on appraisals.
Banks want to do their best to make sure they are making good loans.
Appraisers have to find the comparable property in a close proximity
and have less flexibility to adjust for the intangibles such as end
units, lot size, location, etc. The result is the appraisal numbers are
often coming in significantly lower than the Sales Prices and there is
very little chance of a successful appeal. Now the sellers are blaming
the appraiser for their loss! The appraiser seems to always be in
someone's dog house!
The second issue is a little harder to understand. There is a growing
inventory of bank owned property. It is unclear why this is happening.
Under normal circumstances if a bank foreclosed on a property they
would do everything they could to sell it as fast as possible. That
makes good sense. Now they are foreclosing and in many cases doing
nothing with them. This raises the fear that when they finally start
selling them there will be a glut of under priced properties unloaded
on the market at the same time, further depressing prices. Will that
really happen? I don't know but somehow all of that bank owned
property, known as “REO” will have to be dealt with sooner than later.

Good News

The three charts below represent good news. In the first the Average
Sales Price has shown a significant increase. The second shows the
Sales Volume just about even with last year. The third continues to
show a solid increase in transactions, well above last years! If these
trends hold, as I expect they will we are bouncing from the bottom and
our Real Estate values should be stable and possibly increase slightly!
Let's look again next month!

Avg Sales Price 2008 vs 2009: 36 KB

Number of Transactions 2008 vs 2009: 31 KB

Total Sales Volume 2008 vs 2009 (millions): 29 KB

Distressed Properties ! Foreclosures, Short Sale Problems

recently completed a training course, CDPE (Certified Distressed
Properties Expert) which is one of the best trainings I have attended
in my 25+ years in Real Estate. This course concentrated on both how to
handle distressed properties but also on the events which lead up to
the problems. We have to remember that there are many reasons people
find themselves in this situation, most of which are out of the control
of the homeowner, and no one wants to go through this much stress!
If you are having trouble paying your mortgage what should you do?
#1 Don't panic! Call your lender or loan servicer and ask for their
help. You may qualify to have the terms of your loan modified which
could allow you the opportunity to stay in your home. This can be
difficult and you must be persistent.
#2 The next step is to seek help from a professional to modify your
loans. Do not pay anyone an up-front fee to do this for you! This
practice is illegal in most local jurisdictions and will be outlawed in
Virginia soon. If you must pay someone to handle this, require that the
payment be made after the modification is completed to your
satisfaction! The Department of Housing and Urban Development (HUD.GOV)
has a list of approved organizations which will assist you, generally
at no charge.
#3 The short sale is your next option. This is a very difficult and
frustrating process and should be handled by a professional Realtor who
has received the CDPE designation ( I have 35 in my office alone!).
These Agents have been trained how to prepare and present your property
to buyers and your bank. In many cases the Lender will forgive most if
not all of your negative balance and if you qualify, the IRS will waive
the income from the forgiven debt. Always consult a tax Professional to
determine how the IRS rules apply to you!
CONTINUED:
#4 The last choice you should consider is foreclosure! This is the most
difficult and damaging courses of action you can take. Currently most
banks are very slow to foreclose on a home, it is the least attractive
option for them and the most expensive! The last thing they want is to
add another property into their REO (Real Estate Owned) inventory.
You should do everything you can to avoid going to foreclosure. Many
people do not realize that there are viable options which can seriously
reduce the damage to them and their financial future. This is one of
the most stressful problems you will ever encounter, and it is easy to
become depressed and just give up. Don't let the circumstances cloud
your judgment. You will make it through this!
Let's look at the effect of your options. If you can negotiate a loan
modification you can save a lot of damage to your credit and save your
home for your family. The short sale is your next best option. There
are many different opinions on the effect of short sales but there is a
consensus of opinion that you will be able to restore your credit and
once again buy a home in 2-4 years. A foreclosure will continue to
affect your credit for at least seven years and it will probably take
at least that long to purchase another home. Ultimately it is your
choice which option to follow and I wish you well whichever way you
choose to go.
One very important note is to seek professional guidance before
deciding which option to pursue. If you can, ask an accountant about
your particular case. At the very least call the IRS for information
and guidance. You do not want to go through this process to find you
have avoided the loss however you now owe a large Income Tax debt to
the IRS because you didn't check things out in advance!

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