Northern Virginia Real Estate Blog

Monday, President Bush signed the Housing and Economic Recovery Act of 2008 into law and the press jumped on the obvious storylines:

• First-time home buyers get a $7,500 purchase “credit”
• Conforming loan limits move to $625,000
• Delinquent homeowners get a lifeline from the FHA
• Local governments get federal money for buying and restoring foreclosed homes

However, tucked away on the last few pages of the text, in a section called “Revenue Offsets”, there’s an important tax implication. The new housing law changes the way in which capital gains exclusions are calculated on the sale of a residence.

Under the old system, a taxpayer was entitled up to $250,000/$500,000 of tax-free gains from the sale of a home if filing separately/jointly provided he lived in the residence for at least 2 of the preceding 5 calendar years.

Savvy homeowners exploited this verbiage, moving from home-to-home every 2 years to avoid paying capital gains.

The new law thwarts this tactic.

Capital gains exclusions are now calculated by taking the capital gains on the sale of the home and multiplying it by a ratio of how long a person has lived in a home, by how long that person owned the home.

In the example above, a person living in a home for 2 of 5 years would be entitled to 40 percent of tax-free gains on a home sale instead of all of it. As always, however, it’s best to talk with a qualified accountant about how tax code changes may impact you personally.

The new capital gains rules go into effect starting January 1, 2009.

Move to Plymouth, Minnesota, says Money Magazine in its 2008 100 Best Places To Live survey.

According to the report, the Twin Cities satellite has all of the makings of a desirable home town:

• Affordable homes
• Excellent schools
• Low crime
• Lots of jobs
• Abundant “outdoor life”

The top 5 cities as listed by Money Magazine are the aforementioned Plymouth, Fort Collins (CO), Naperville (IL), Irvine (CA), and Franklin Township (NJ).

So did anything in Northern Virginia make the list?

Of course it did …

19. Hunter Mill, Virginia - near Vienna and the Wolf Trap National Park.  Noted were the proximity to DC and it’s access to local amenities without the hustle and bustle of NoVA traffic.

25. Sully, Virginia - located near the Dulles Corridor and Rt. 28.  Noted were the affordable homes and convenient location near jobs and entertainment.

31. Burke, Virginia - of course this area made the list because of the family-oriented community that surrounds Burke Lake.

37. Reston, Virginia - noted were the abundance of activities, trails, lakes and entertainment that come with this planned community.

The 100 Best Places To Live survey is also sortable by specific metrics, including housing affordability, job growth potential, and cleanest air.

Statistics won’t always tell the whole story, but they often provide good perspective.

The graph at right shows Existing Home Sales data going back three years. An “existing home” is one that can’t be called new construction; a “used home”, so to speak.

Note the steep decline from 2005 through late-2007.

Since November, however, Existing Home Sales have remained within a very tight range and appear to have reached a flattening point.

The Existing Home Sales data supports the word-on-the-street from real estate agents nationwide that buyers are returning to the housing market in search of good values.

But let’s not forget — demand is only half of the story. There is the supply factor, too, and the supply side of the housing market is showing the same leveling signs as the demand part.

Looking at the national inventory at left, the number of existing homes for sale has hovered near 4.5 million for the last several months. No change suggests strength.

Now again, statistics won’t tell the whole story but there are plenty of positive signals from the real estate market right now, just like there are negative ones, too.

This is one reason why real estate data causes so much debate — people want to take an either/or proposition about the state of the real estate and it doesn’t work like that. Real estate can be simultaneously strong and weak and when it is, buyers look for value.

Perhaps this is why the national housing data is beginning to level off after a 3-year slide. There’s good values to be had, and today’s home buyers know it.

(Images courtesy: Wall Street Journal Online)

Average Sales Price, Average Days on Market and Total Active Listings

Click below for more detailed charts …

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Average Sales Price, Average Days on Market and Total Active Listings

Click below for more detailed charts …

Continue Reading »

Average Sales Price, Average Days on Market and Total Active Listings

Click below for more detailed charts …

Continue Reading »

According to RealtyTrac, the rate of foreclosures across the U.S. is slowing. Versus May, June foreclosures fell at a 3 percent clip.

25 states showed improvement month-over-month, led by many of the same areas that had fueled foreclosure activity in 2007.  Unfortunately, Virginia was not one of those states as it had a 9% increase from May to June.

A sampling of RealtyTrac’s data includes:

• California : Foreclosures down 4.54 percent
• Georgia : Foreclosures down 14.91 percent
• Arizona : Foreclosures down 0.07 percent
• Michigan : Foreclosures down 6.00 percent
• Illinois : Foreclosures down 15.65 percent

However, the improving nature of the data is not what is making news this morning. Instead, the press is reporting that foreclosures are up by half since last year and that bank seizures have tripled.

And while the annual data may be accurate, that doesn’t mean that it’s necessarily relevant to home buyers and home sellers across the country.

This is because people buying and selling homes don’t usually boast an “annual” mentality; when someone’s an active participant in the real estate market, the mentality is “right now”.

In other words, annual data fits an economist, but month-to-month data fits you.

June’s foreclosure data may be the start of a trend, or it may be a blip. It’s really too soon to tell. But the RealtyTrac data reinforces what real estate professionals already know — that markets all over the country are showing signs of life.

It’s a terrific time to buy a home, but not because homes happen to be affordable.

It’s a terrific time to buy because the variety of mortgage products available to home buyers looks poised to shrink.

Monday, Alt-A mortgage lender IndyMac Bank stopped accepting mortgage applications and it’s likely that other Alt-A lenders will likely follow suit.

Alt-A loans are ones in which borrowers can’t (or won’t) verify one of two major underwriting criteria:

• Evidence of income
• Evidence of assets

Since the Credit Crunch began last July, Alt-A mortgages have been a steady source of funds for “in-between” borrowers — those that are not quite prime, and not quite sub-prime. IndyMac was among the largest lenders of its type and had outlasted many of its peers.

Its position as a market leader and subsequent exit from lending means that the remaining Alt-A lenders will likely make one of two choices in the coming weeks:

1. Raise rates and fees because of greater Alt-A mortgage risk, or
2. Follow IndyMac’s lead and exit mortgage lending altogether

Both outcomes would be harsh for home buyers of all types because when any large bank takes mortgage-related losses like IndyMac just did, it tends to create major risk aversion in the market.

Risk aversion impacts everyone – even the “good” borrowers.

Banks have been nervous about lending for several months and so they’d rather pass on an “average” mortgage application rather than risk getting stuck with a potentially “bad” one. IndyMac’s exit may cause fewer mortgages to get approved.

In other words, buyers eligible for financing today may be ineligible tomorrow.

Therefore, if you’re a home buyer and you know your credit profile is less-than-ideal, consider writing a purchase contract sooner rather than later. Your mortgage options may be thinning, and the ones you have may be getting more expensive.

Last week, Forbes Magazine published a Top 10 list that should grab the attention of housing market bottom-feeders.

The Top 10 list of Increasingly Affordable U.S. Housing Markets shows that falling home prices and steady mortgage rates are providing a support floor in some of the country’s most beat-up regions.

The report’s methodology is simple:

• Take citywide income data as reported by HUD
• Match it against purchase prices from court records
• Run the math using “prevailing interest rates” from Wells Fargo

A city is considered “more affordable” if increasing numbers of “average families” can afford “average homes”. It’s not surprising, therefore, that the Forbes list is dominated by cities in which home prices have plummeted over the last year, and in which the economy is relatively sound.

This may suggest that a housing rebound is already underway in several of the cities listed as Increasingly Affordable U.S. Housing Markets, including:

• San Diego, CA
• Orlando, FL
• Riverside, CA
• Phoenix, AZ
• Las Vegas, NV
• and YES our very own Washington, DC metro area

The report noted that in the DC area 57% of homes are affordable for the median household. That figure compares to 37% in 2007. Of course the main contributor to the new found affordability in our area is the 13% decline in housing prices since the same time last year.

It’s a tough time for those that have to sell their homes now - but for those of you that have been complaining about the outrageous home prices in this area … here is your chance.

Read the complete study and its results at Forbes.com.

(Image courtesy: Memorable San Diego Vacations)

In the summer of 2005, sub-prime mortgage lending was at its peak. Rates were relatively low and lending guidelines were relatively loose.

At the time, the “standard” sub-prime mortgage product was the 3/27 ARM.

The 3/27 had a few basic traits:

• A fixed, 3-year “starter rate”
• Every six months thereafter, the mortgage rate changed
• The formula by which it changed was (4.999 percent + 6-month LIBOR rate)

If the loan was interest only, it usually converted to principal + interest at the first adjustment, too.

Because the summer of 2005 was the peak of sub-prime lending, it makes sense that the summer of 2008 is the peak of sub-prime adjusting.

For homeowners with adjusting sub-prime loans, there is some (relative) good news out there.

Today, the 6-month LIBOR hovers near 3.15 percent, meaning that an adjusted mortgage rate will be in the neighborhood of 8.15 percent.

This is versus the rate of 10.30 percent that sub-prime borrowers faced last summer when LIBOR was much higher than it is today.

Adjustments of any size can strain a household budget, though, so if you’re a sub-prime borrower and your pending adjustment will cause financial strife, be proactive — talk to your lender before you miss a payment.

Lenders are often more willing to talk with “current” borrowers than with delinquent ones.

(Image courtesy: Washington Post)