70 Degrees and Sunny

Avery-Hess has Lots of Open Houses this weekend! Check out our ad in the Washington Post or search Open Houses in your area at www.averyhess.com!

Wow! What a day! 70 degrees out and sunny, a great time to be out looking at homes!

Everything I am reading/hearing/seeing is telling me that we are seeing substantive signs of recovery in our local Real Estate market. Even the Washington Post had an article in the Real Estate section today that chronicled how buyers who have been sitting on the fence for the last couple of years are now beginning to move on properties because market conditions, prices, and interest rates have created an attractive home purchase proposition for many. In my opinion, once the media begins to pick up on trends (either positive or negative), industry is already well into the early stages of a new business cycle.

It’s beautiful out. If you have been thinking of buying a home, take advantage of this beautiful weekend and make a day of it!

Search for homes: www.averyhess.com

This post written by Amit Kulkarni, Director of Marketing & Technology at Avery-Hess, Realtors.

Obama’s Plan to Fix Foreclosures

This morning, federal officials released details of the Obama $75 Billion loan modification and refinancing plan for foreclosure prevention. This plan follows the $8000 first-time homebuyer tax credit initiative unveiled in late February.

It is clear is that the Obama administration is dead serious about allocating financial resources (and taxpayer money) to stimulate the economy through investment in finance, banking, and home-ownership. Because these subsets of our economy are to a large degree interdependent, it is imperative to stabilize all of these sectors simultaneously to effectively begin to stem losses and boost confidence.

Will these initiatives serve as a catalyst for growth? Will they serve as an intermediary? A stop-gap measure? Is $75 Billion a sufficient amount to even make an impact? At this early juncture, the jury is still out—only time will allow us  to accurately benchmark the effectiveness of these programs.

The underlying premise of these initiatives, at least for housing, is sound: Stabilize home prices by slowing (and hopefully eliminating) the rate of foreclosure, while stimulating growth in housing by incenting first-time homebuyers to take the correct steps toward home-ownership. We have been in a down-cycle of Real Estate for almost 4 years. Nothing stays down forever, but what has put the brakes on homeownership and new investment in Real Estate has been the continued downward trending of home values.

While prices have already begun to stabilize in a lot of local markets, there are still others where it is unclear when the softening of home values will firm up and begin to rebound. Much of this uncertainty is due to the rates of foreclosure in certain pockets of our area (and nation). If this $75 Billion plan is effective, the hope is that it should stem the tide of foreclosures, allow prices to stabilize and eventually rebound—which in turn will entice many of the first-time buyers to move forward and invest in Real Estate.

There are 2 major subsets of homeowners this plan affects (roughly 9 million homeowners total):

1. Homeowners who have missed payments and whose monthly mortgage payment is disproportionate to their income (roughly 4 million Homeowners fall in this category). This plan will work to reign in their monthly payments to no more than 31% of their gross income.
2. Homeowners who have not missed a payment but have little or no equity (Roughly 5 million homeowners). This plan will allow these homeowners to refinance into lower-cost loans.

The eligibility criteria and program guidelines for loan modifications are as follows:

1. Homeowner(s) must have obtained their mortgage prior to Jan 1, 2009
2. Homeowner(s) must have a primary mortgage of less than $729,500
3. Homeowner(s) must live in the property
4. Homeowner(s) must fully document income through tax returns and pay stubs
5. Homeowner(s) must sign a statement of financial hardship
6. Homeowner(s) must go for financial counseling if their household debt (including auto loans, credit cards, alimony etc.) totals more than 55% of their income
7. The program will be in effect until 2012, however, loans may only be adjusted once

This plan is very different than the first loan modification that was implemented in 2008; the previous program had a loan re-default rate hovering around 50% after 6 months—rendering the first plan essentially ineffective. However, this plan was loosely structured and relatively unregulated. The intention of the new $75 Billion plan is to include provisions for governance and regulation, but again, only time will allow us to truly benchmark its effectiveness.

This plan does provide hope for millions of Americans in need.  If implemented effectively, these aggressive actions can serve as a catalyst for the housing market and overall economy.

This post written by Amit Kulkarni, Director of Marketing & Technology at Avery-Hess, Realtors.

Search for Homes: www.averyhess.com

How do I know if this is the right time to buy a home?

Based upon the plethora of news articles about the general economy and the dire straights of the housing market that inundate the potential home buyer on a daily basis, it’s surprising all of us don’t head for the hills and hunker down for the long haul. 

The reality is that people are making decisions and buying homes every day, and the pace is beginning to pick up.  Trying to outguess the market, either at the top or the bottom, is always a difficult task.

Generally speaking, I have always believed if you wait until someone tells you the market is at the bottom, or top for that matter, you will have waited too long.  Markets always move faster than the collection and analysis of data that will then point to a conclusion.

 But again, how do you go about making a reasonably intelligent decision regarding timing?  For every home buyer the answer to that question differs slightly.  The real estate market is moving away from a decision being made primarily on a financial basis, one where home buyers grew to have an expectation their home would increase substantially in value every year- a philosophy that oftentimes had us treat our home as a credit card or checkbook.   As a young man, and rookie real estate practitioner, I learned early on people bought and/or sold homes for a variety of reasons; birth, marriage, death, divorce, quality of life, school districts and for reasons and benefits other than appreciation.   There was always a fundamental difference for me between the stock market and the housing market.  “You don’t need to own stock, but you need a place to live”  That simple fact means we have to have housing for everybody. 

The number of households being formed  in the last few years is growing at the same time the new housing product coming on the market has been declining.  Given time, those factors will converge to give us a housing shortage.   The downturn in the real estate market has been well over three years now, and you cannot keep people out of the market forever.

I sometimes feel like I am witnessing a scene from the children’s literary classic “The Little Dutch Boy” where a child is trying to stem the rush of seawater from engulfing his town by plugging holes in the dyke with his finger. Much like the story of the little Dutch Boy, cracks are forming in the recent barriers to home-ownership, and buyers are starting to filter through and reenter the marketplace.  You can’t hold back demand forever.

We have seen tremendous numbers of buyers, particularly over the last two years, watch the market, assess the market and hesitate to get off the fence.  That is OK.  Ultimately, when you feel good and have confidence about your job stability and your personal financial situation, and you begin to have confidence in the housing market recovery, you will make a decision.  

For the last several months, I have been touting residential real estate as an asset class that has repriced itself.    Home prices have fallen, dramatically in some market areas, and oftentimes I see offering prices at one-half the price the same home sold for in 2005 or 2006.   Starting in the 3rd quarter 2008, I also began seeing a disproportionate share of homes being sold “all cash” to investors.  More than I have ever seen in my 32 year career.  That told me money was beginning to flow from the stock market, hedge funds and other asset classes into the real estate market.  This would not have happened if astute investors realized residential real estate was still going to be hammered and fall in valuation.    Interest rates are low.  Fixed interest rates between 4 1/2 and 5 1/2 for a 30 year mortgage are readily available, and obtaining a loan, while certainly more scrutinized than in the past, is not a problem for creditworthy purchasers. 

And finally, lets talk about rents.  Rental rates have not fallen, primarily due to the lack of home purchases sending people to the rental market.  Many people that are currently renting can now own a home for the equivalent of your rent payment, and depending upon your tax situation, actually own a home for less than what you are paying on a monthly basis in rent.  One of the financial benefits to home-ownership has always been the ability to deduct the mortgage interest and real estate taxes you pay on your principal residence.  For most of us, this valued benefit remains as our most significant tax deduction—a deduction you are not able to take advantage of as a renter.  In addition, the new stimulus package has also given the 2009 home purchaser another tremendous incentive—up to an $8,000 credit on your taxes. 

*Please refer to my previous post: “The Obama Homebuyer Tax Credit De-Mystified” for information on the specifics of the $8,000 Tax Credit.

So ultimately, when all is said and done, the right time to buy is still a personal decision.   But, and I say this with emphasis…..In my opinion, all the factors are pointing to an unprecedented opportunity for Home-Ownership that is sitting right under your nose today and for the next couple of months. 

Remember, when demand starts picking up, prices stabilize, seller’s firm their resolve (they might not negotiate as much), and the ultimate cost of your home-ownership might edge up.

My final comment is another lesson I learned early on…. “It’s not the timing of the market, It’s time in the market”.  Owning a home is a lifelong quest to better your life and achieve stability and some financial growth along the way.

Good luck with your search for a home: www.averyhess.com

Post written by S. Scott Avery, President, Avery-Hess, Realtors.

LoCo in MocCo! How to handle the plunging real estate market in Montgomery County, MD

Since 2007, many areas of Montgomery County, MD experienced a drop in prices. As of the last quarter of 2008, the only area (according to MRIS numbers) to not experience a decline was Derwood, MD (a small enclave of homes nestled between Rockville, Olney and North Gaithersburg. Zip Code 20855). This can put a huge damper on home buying, with everyone thinking “Why buy today when the price will go down tomorrow?” It also makes it difficult for a knowledgeable real estate agent to give honest answers, such as telling a prospective listing that they may only get 80-90% of the asking price (again based on MRIS averages), or that it may take 4-6 months to sell a home. Here are some tips to weathering the storm and motivating people to act now.

The “chicken or the egg” dilemma. Which will come first? Economic recovery and stable home prices or more of the decline? Deflation is not so bad for buyers because they end up spending less. The question is will they ever spend the money, or always believe they paid too much because they acted too soon? Inflationary trends on housing prices force too many good home buyers out of the market. Buyers need to find something they like and be willing (or encouraged) to act. Negotiation was an art sorely lost in the past few years. Investigate the average cost of living in an area, review demographics, collect information about the property condition, and compare the cost of the home to local rental prices. At the end of the day, does this buyer want to live here or not? What do you expect (realistically) of the seller to make this a viable purchase? The worst that could happen is that the seller rejects the offer.

There are always people looking to buy homes. Just not droves of buyers, but you get the idea. Sellers need to face reality. If they want to sell their homes, then it needs to be attractive to the few available buyers out there. Along with staging the home, making improvements, and the ever popular “fresh paint and new carpet,” nothing says “I love you” like a good price point. You may impress a buyer with your gorgeous home, but they will walk away thinking, “Let them sit with it, because the they will drop the price tomorrow.” Take a tip from Walmart- their motto is: “Always low prices” i.e. there is a good deal in everything you buy there. It’s the same stuff you see everywhere else, but here it’s better because the price is better.

Don’t go LoCo in MoCo.: A quick run-down of where to buy. There are three general rules of real estate: location, location, location! As redundant as it seems, location will determine, in my opinion, where housing prices will go in the future- especially with the growth of public sector jobs that will occur in our area. Couple that with wild gas prices having more ups, downs, and loops than a roller coaster ride, and you have a recipe for my number one choice for location: Metro Stations! The county has been very benevolent with redevelopment near Metro Stations (specifically White Flint, Rockville, Twinbrook, Silver Spring and Wheaton) that offer nothing more than condos and apartments a hop and a skip from the Metro train itself. Buying up single family homes nearby is a great, long-term investment because the apartment/condo dwellers may eventually want to upgrade within their own neighborhood, along with the normal Metro seekers that will inevitably show interest as well.

Ok, I found a Metro Station. Now What? Recognize the long term profits that can be made! Increased home values not only equal capital gains. Greater equity (meaning, more than 20% loan to value) allows home owners to help pay for children’s schooling, more exquisite vacations, that back yard deck you’ve been dreaming about, or even a vacation home in Bethany Beach, for example. Is there a recipe for success? Not a chance, but there are some things to watch. The best thing that can happen is redevelopment. Tear down the old and build something new and expensive. Think about the Walmart principle, and always remember that new construction has certain fixed costs that will set a new marker for home prices in an area. Older, existing homes in these areas will see a boost in interest, but are still going to have to compete with the new, fancy high-density homes. This is partially speculative, but has shown positive results: take out some equity, fix up your home with new kitchens, bathrooms, and hardwood floors (which are all the rage now) and go up against the new kids on the block. Make buyers think about value: Oooh, a big home with a yard and a garage for only slightly more than a new condo…

Ok, smart guy, where should I be looking exactly? Make your decisions based on what you can afford. Why buy a condo in North Bethesda when you can buy a single family home in Wheaton? Conversely, why buy a smaller home in Silver Spring when I can buy a larger home in Rockville? Also keep in mind functional obsolescence: someone thought that putting the kitchen in the basement was a cool thing in the sixties and built a ton of homes in that model. In the fifties, it was en vogue to tantalize so many new buyers with a full bathroom in their house (a trend that began in 1929, with indoor plumbing rising 350% until 1954). The homes reflect the trends of the years they were built. If you like an area with older homes, make it a goal to renovate your home to reflect current trends (something as simple as a visit to HGTV.com for more information).

What else am I looking for? Keep an eye out on the commercial market. That means watching to see how often stores turn over, how often giant “For Lease” signs pop up in front of office buildings or shopping malls, and how many windows are empty. Rockville and North Bethesda is experiencing significant redevelopment along Rockville Pike. A new mixed use facility is being built across from White Flint, and Mid-Pike Plaza is slated for redevelopment very soon. Downtown Silver Spring has “sprung” and Wheaton is still being improved.

Nothing beats Potomac, Bethesda, and Chevy Chase. These are the most solid neighborhoods in the county. While MRIS had their values trending downwards, most of the downward pressure comes from seven figure homes. The average cost of homes in these neighborhoods is generally above $600,000 and have very few foreclosures. Bethesda and Friendship Heights also offer tremendous proximity to Metro, greatest variety of stores and restaurants, and are always on the path to improvement (Friendship Heights more so than Bethesda).

Most importantly, you have to like where you live. Ignoring all other considerations, this is key. You won’t be satisfied raking in capital gains when you are miserable in a neighborhood. I am just offering some guidelines to success, and tips on where to buy while the market is still soft. Don’t wait for prices to fall- they may not go much lower. Find an affordable area and act quickly to seize the opportunity.

Justin Walls is a Realtor with Avery Hess Realtors. You can learn more about him on his website http://walls4homes.com

Own a Home but Need to Move? Consider Turning your Home into a Rental to Ease the Burden

In the last 2-3 years, the Real Estate world has been focused on foreclosures that have flooded the market, and rightfully so. These foreclosures have impacted our local market significantly, causing home values in many neighborhoods in Maryland, DC and Virginia to drop significantly.

Even though prices have finally begun to stabilize a bit in some local markets, the significant drop in home values has affected all homeowners in our region – especially those who are looking to make a move but are burdened with a home that has seen a significant drop in value. However, this situation is not untenable. Many homeowners who are in this situation need not feel trapped by this market – looking to turn your home into a rental property could be the solution you have been searching for.

In order to facilitate a successful transition from homeowner to landlord, it is critical you begin to view your home as an investment – and this means detaching yourself emotionally from your home. For starters, you will need to:

1. Calculate the monthly hard carrying cost of your home. This means factoring what your  mortgage, taxes and mortgage insurance (PMI) cost you on a monthly basis.
2. Factor in “x” amount of dollars for routine maintenance and repairs. Regardless of what kind of home you own, you will need to set aside some money every month to cover maintenance costs. Perhaps the HVAC filter needs to be replaced, or the system needs to be serviced. Maybe you need to replace some siding or fix a leaky faucet. It is prudent to set aside some amount of money on a monthly basis to cover these costs as at some point, you will need to maintain or repair something in the property.
3. Understand how much rent your home will garner. Ultimately, a home will rent for what he market can bear – and each local market is different.
4. Be realistic – your home may not become an investment cash cow, but if renting it out allows you to come close to break even (or a bit better), it may allow you to make the move you have been wanting to.
5. Enlist the services of professional Property Management. It is easy to underestimate how arduous the task of maintaining a rental property can be. Additionally, tenant-landlord relationships are governed by a litany of state and local laws with stiff penalties for non-compliance. And do you really want a phone call at 2 am from your tenant about a leaky faucet or a creaky screen door? Property Management companies protect your investment and take care of the tenants and issues. And yes, in a shameless plug, Avery-Hess does offer professional Property Management Services – if you would like some more information about professional Property Management, please contact the Director of our department, Katja Hom, at: khom@averyhess.com.

Deciding to turn your home into a rental property is a decision that should be made on a case-by-case basis; for some of us it will make sense, for some of us it will not. If this option is financially feasible for you, what it will allow is for you to maintain an asset in Real Estate while rebuilding some equity over time, and will loosen the constraints for you on looking for a new home.

To learn a little more about property management services and if this option makes sense for you, feel free to contact Katja Hom at khom@averyhess.com.