D.C. Area Housing Market Booming In Face of Struggling Markets Nationwide

What makes the Washington, D.C. market different than the rest of the country? The job market within the market. While other cities brag about being the headquarters of Fortune 500 companies, we have something none of them will ever have – the Capital City of the United States. I like the way one colleague puts it when explaining to agents from other states: “When you can put the Pentagon, Congress and the White House in your backyard, then you’ll have a housing market like ours.”

It’s been an interesting week on Wall Street and on Pennsylvania Avenue, leaving Main Street wondering what will happen with the housing market. When you look at our numbers around the Washington Monument, and see that the job growth here has moved upward and heating up even more, it doesn’t take a rocket scientist (or political scientist) to see that the inventory is dropping, prices are starting to level and move upward, and buyers are writing contracts at a triple digit rate more than last year.

If you’re looking to move up, this is the year to take advantage of level prices so you can move up without busting your personal budget. In addition, with FHA financing requiring a minimal down payment, first-time buyers are creating a feeding frenzy in the entry-level market in all property types. We’re seeing more parents help their kids buy a house now before they are priced out of the market. Renters are getting out of supporting the landlord and beginning to build their own equity and personal wealth.

So what? What does this mean to you? Real estate is local. Despite job challenges and foreclosures across the country, homebuyers and sellers must make a decision based on the local scene. The number of foreclosures in the area is declining month after month AND they are drawing multiple offers. Traditional sales of homes priced right and in good condition still make up the majority of the market. Is now the time for you to sell or buy? Waiting too long may cause you to say in the future: “You know, I could have …”

Donald Trump: “This is the time to start looking to buy, you’ll get a great deal.”

Donald Trump, internationally-acclaimed realty guru and multi-billionaire, said on Good Morning America radio August 13, “This is the time to go out and start looking and start buying. Over the course of the next year if you don’t do it you’re going to be very disappointed in the years to come. Now is the best time in years to purchase real estate…especially in the next 12 months to get the best deal.” – Good Morning America, interview with ABC’s Good Morning America, August 12, 2008 (For the whole interview, view online at http://abcnews.go.com/Video/playerIndex?id=5576708.)

We are seeing the rebound in full force in Northern Virginia and surrounding Capital area. Compared to August a year ago, pending sales are up 39% in Northern Virginia (Arlington, Alexandria, Fairfax County); and 52% in Fairfax County alone. In Prince William County pendings are up an astounding 155% (in Manassas, they are up more than 200%). Why?? The prices have hit the psychological barrier where buyers believe they aren’t going to drop any more. In addition, pent up demand over the last three years has built up to an overflow level.

Multiple offers are back and houses are selling close to or at asking price. A Weichert associate recently had 40 contracts on a property in Manassas – multiple offers are not unusual once again.

So what? If you’re looking to move up, purchase an investment property or help your children buy a home – now is the time. Home prices have leveled and are rising in some areas. Investment properties are once again producing positive monthly cash flow and young buyers can now purchase a house for less than what they would pay in rent.

Northern Virginia Turn Around Full Throttle!

Wow! I’ve never seen this kind of turnaround happen so quickly. In just a few months, we have gone from negative numbers in every category to double and triple positives all around Northern Virginia (just outside Washington, D.C.). Here’s what’s happening:

The foreclosure market has created a feeding frenzy for properties priced under $500,000. Nearly 36% of all homes on the market under $500K are foreclosure homes. Only 6% of listings over $500K have that distinction. Thus, prices have reached a psychological barrier point, which has brought out buyers in the thousands around the Capital area. (Stats available at http://www.mris.com/, click Market News.

The buyers are competing again for properties priced right and in good condition. It is not unusual with the foreclosure market to see 10 or 20 contracts competing. Many of the foreclosures need only cosmetic fixes and some have upgraded kitchens, baths and flooring. More are coming in the next month.

There are plenty of fixer uppers available for those willing to apply “sweat equity” to build wealth.

Prince William County is the county of affordable housing once again. I’m seeing more and more first time buyers back in the market, purchasing single-family homes starting in the $100,000’s. (These homes are also enticing for investors!)

Prices are now holding. If you are buying, more than likely you’ll be paying closer to asking price now than was possible just a few months ago. Buyers on average are paying 97% of list price.

So what? What does that mean to you? If you purchased your home in 2005 or earlier, then now is the time for your move up. Real estate is local and all the signs are lining up: shrinking inventory, increasing demand, holding prices, lower interest rates. Move up into that larger home (or your first home!) before the prices or interest rates make it out of reach!

Until next month…

It's a REAL Spring Market - Northern Virginia Real Estate

Days on market have dropped. My team members and I are hitting up against multiple offers on listings. Listings in the office are selling. Traffic at open houses are up by 40% in some communities. And the number of contracts written in our market are outpacing last year’s levels. What’s more important to home owners, we are seeing pocket markets that are starting to appreciate.

When looking at the last two springs, this spring market has really taken off. The market has turned around and it starts in the Capital city of Washington, D.C. and is moving out from there (as it has year after year). What’s more important is that the latest financing regulation changes have included the Washington, D.C. as a high-priced region. This means that conforming loan limits around your home will be at the highest level possible -- $729,750. Before this latest move, loan limits for conforming loans were at $417,000.

So what? What does that mean to you? If you’re looking to sell, it now means more buyers may have been brought into the level it would take to purchase it. In addition, it means better loan programs with lower interest rates – in essence, money just got cheaper.

Should You Invest In Foreclosures?

Periodically I hear from readers who want to make $1 million in real estate -- quickly and with no money down. Usually they want to know more about real estate foreclosures -- how to buy them and how to profit from such homes. I've participated in a couple of these deals, and I'm now working on my second million -- I gave up on the first.

Foreclosure properties can be a good place to invest for exponential growth (or loss). There are some deals out there for little or no money down, but potential investors should take precautions because foreclosed properties can involve significant risks.

There are various ways to invest in foreclosure properties. The first and probably most popular is to purchase a property, fix it up and then rent it out, hopefully creating a positive monthly cash flow. The investor then becomes a landlord, with all the responsibility of an investment property owner.

The second way to invest is to seek out foreclosures or "handyman" specials, buy them, invest more money to fix them up and then sell them, taking -- hopefully -- a profit once the house is sold.

A third approach is to purchase a foreclosure that is underpriced and selling it immediately at a higher value.

One way to sell homes for a higher value is to take back a mortgage. For example, let's say a house worth $100,000 is sold at a foreclosure to an investor for $50,000. The investor may put down 10 percent and assume or create a new mortgage for $45,000. The investor then advertises the property at a discount, say $80,000, offering 100-percent seller financing (remember, we're figuring that like houses are worth $100,000).

The owner hopes to create a sense of urgency by underpricing the house and pulling in buyers.
If successful, the investor takes a promissory note from the new purchaser for $80,000. He has now created a $35,000 note for himself (The difference between the $80,000 sale price and the original $45,000 mortgage). The new buyer makes payments to the investor for an $80,000 loan and the investor makes payments on the original loan for $45,000. In real numbers, here's what it would look like.

If the original loan is for $45,000 at 8 percent over 30 years, the principal and interest is $366.88. When the second buyer takes a note for $80,000, the investor may charge a bit higher interest since he's offering 100 percent financing.

Let's say he offers an $80,000 loan, 9.5 percent over 30 years. The monthly payment is $672.68, creating a positive cash flow of about $306 per month.

If the borrower stays in the house for 30 years, the investor will make $88,295 in interest and $30,000 in capital gains after he's paid his own interest on the first note for a total return of $118,295. Not a bad return on a $5,000 downpayment.

Keep in mind that not all mortgages allow an owner to "wrap" a second mortgage onto original loan. Most loans today contain a "due-on-sale" clause, meaning if the property is sold, the first trust must be paid off immediately. Wraparound financing is popular when investors purchase foreclosed Veterans Affairs (VA) properties as the VA allows wrap-around loans in such cases.
Before you go out, checkbook in hand and ready to bid away, take some advice first.
If you're deciding to invest in foreclosure properties with a spouse or with other investors, be sure that everyone understands this form of investing. You are about to enter a world of high finance, property management, calls in the night from tenants and other risks that regular homeowners never experience.

Second, get educated. Reading this column does not constitute preparing the first-time investor to start bidding on properties. There are plenty of real estate agents and auctioneers who do this on a daily basis and would be happy to educate you in the world of foreclosure properties. Also, visit the bookstore for guides by reputable authors who know investment intricacies.

• Third, be realistic.
• Not all foreclosures are good deals.
• Not all foreclosed properties are available at discount.
• If you take back a loan your buyer could default.
• Most loans today prohibit wraparound financing.
• Repairs might be far more than you expect.
• Not all tenants pay their rent on time -- or at all.
• Some renters damage property.
• Changing interest rates could impact your bottom line.
• It may not be possible to re-sell the property without extensive -- and costly -- repairs.
• Not every deal yields a profit.
• If you have a profit you may face taxes.
• If you only look at foreclosures you may miss other investment opportunities.

The list of potential downers goes on...and on and on.... Think of it this way: If making money with foreclosures was both easy and a sure bet every time, no one would bother with IPOs -- or jobs.

Fourth, get professional help from brokers, lenders, attorneys, accountants, home inspectors, and others.