But look what happened in October.  Our government told us we were in a global financial crisis.  Stocks fell through the floor.  Large companies declared bankruptcy.  There was a bailout plan announced that seemed to give no confidence to investors or others in the United States or around the world.  What would you expect would happen to our local Real Estate market in Northern Virginia?  I expected numbers to be down quite a bit because of the fear people were showing regarding their finances.

The numbers did go down slightly, but much of that can be attributed to normal seasonal changes in the market.  There are many bright spots in these numbers.  The raw number of sales was up more than 30% from the previous October, while listings were down 15% during the same time period.  In October 2007, there were 8.4 months worth of house sales on the market.  In October 2008 that number was reduced to 5.5 months.  This tells us that our market stayed very strong through a very traumatic month for our nation’s economy.

One note about my spreadsheet below:  I’ve added a column this month called “absorption rate.”  This is the rate the real estate market is “absorbing” homes, measured in months.  In other words, this how long it is taking to sell a typical home.

The spreadsheet shows the data from October 2005 through October 2008 for Arlington County, Alexandria City, Fairfax County, Fairfax City, And Falls Church City.

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Written by Jeff Royce of RE/MAX Choice Real Estate, Fairfax, VA,  571-482-7817

Here are the numbers from December 2005 through last month:

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Written by Jeff Royce of RE/MAX Choice Real Estate, Fairfax, VA,  571-482-7817

1) You are not buying too much house for your budget.

2) You are using the type of loan that will minimize both expense and risk in your personal situation.

Before you make a home purchase you should personally analyze your budget and do some soul searching. Ask yourself what priority the purchase of your home should be in your life and finances. How much of your budget are you willing to spend on your home? What things are you willing to give up in order to own a home? What are (realistically) your future financial prospects?

When you meet with a loan officer for the first time, go with a good idea of the amount of money you are willing to spend upfront and on a monthly basis in order to purchase a home. You may tweak these numbers later, but go in with a ballpark figure. Be open to answering questions from your loan officer. They should ask questions like: How long do you plan to be in your new home? Do you expect your income to rise over the next few years or remain steady? Is your income stable or does it vary from month to month? Are you comfortable taking a risk that your payments will go up down the road in order to save money now, or do you want to make sure your payments are stable?

Any loan officer (or lender web site) will tell you how much you qualify for and give you an array of loans to choose from. A good loan officer will listen to you, then help you choose the loan that best meets your needs. A good loan officer will also give you an opinion about the best loan for your situation based on years of experience working with many buyers.

Choose a loan you are comfortable with, that you qualify for, and that you can actually afford before you ever go out and look at a home. It is very difficult (and discouraging) to find a home in your price range if you have been out looking for homes that cost 20% more. Know your price range before you start looking and you will save yourself a lot of frustration.

In choosing your loan officer get a recommendation from someone you trust, preferably your real estate agent. Most loan officers are commission based and get most of their business from 3-6 real estate agents that they work with regularly. This can benefit a buyer substantially. If a substantial portion of a loan officer’s livelihood comes from your agent, the loan officer is much more likely give great service to you. You are much more likely to have commitments honored. You are much more likely to have the money there the day you have committed to close on your purchase. (Note to first time buyers: Though it is hard to believe, some lenders all too often take loan applications, process your paper work, make you find obscure financial information, then don’t have the money there on the day of closing.)

After you meeting with a loan officer, you should take with you a good-faith estimate showing you all of the costs (upfront and monthly) involved in purchasing a home, and a pre-approval letter stating exactly how much you can afford to borrow and the total price of a home you could purchase. This will allow you to move into the next steps of the home buying process: finding the right home and negotiating the best price.

One more thing: read this perspective of a loan officer from a loan officer. It is a little scary, but very true.

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Written by Jeff Royce of RE/MAX Choice Real Estate, Fairfax, VA,  571-482-7817

Loan terms and credit underwriting standards have been toughened up, but you can still put down 3 percent (3.5 percent after Jan. 1) on an FHA-insured mortgage and 5 percent on certain Fannie Mae and Freddie Mac loan programs with private mortgage insurance. The FHA’s credit standards are generous and forgiving — the agency exists to help people with less-than-spotless credit histories.

Despite the general gloom in the financial markets, money for mortgages is still readily available.  And buyers, taking advantage of historically low rates and low prices are getting back into the market.  Again according to Kenneth Harney:

Home prices — pushed by foreclosures and short sales — have rolled back to 2003 and 2004 levels or lower in many of the former boom markets. As a result, growing numbers of buyers are coming off the sidelines, making offers and writing contracts. The pending home sales index jumped by 7.4 percent based on purchase contracts signed in August, according to the National Association of Realtors. The heaviest increases — pointing to higher closed sales in the coming two to three months — were in California, Florida, Nevada and the Washington metropolitan area.

Read the whole article here.

The statistics continue to show an improving market.  The real test for this market will come next month when the statistics for October are released.  How is the market handling all of the turmoil in the global financial markets?  We will find out next month.

Below is a spreadsheet showing the number of homes that sold each month along with the number of homes on the market in that month along with the percentage of homes that sold over the last several years.

It is interesting to note the Fairfax City market lags the Northern Virginia market this past month as it typically does.  Also note that the market sold at twice the rate it did in September 2007 when only 9% of the homes sold.

In the real estate market, lending standards have tightened.  Fewer people are able to purchase homes than could purchase them just two or three years ago.  The money needed for a down payment has increased from 0% to 20%.  The very big exceptions to this are government loans: FHA loans, which require a 3% down payment, and VA loans (for veterans of the armed services) which don’t require any down payment at all.  Both of these government loans and have recently increased their loan limit to $729,750 for homes in Northern Virginia.  As you can imagine, government loans have become very popular. 

Prices have dropped nationwide as well as here in Northern Virginia.  Price changes are neighborhood specific, but in some neighborhoods in places like Prince William and Loudoun Counties, prices have been cut in half.  In some of the more desired neighborhoods in close-to-DC locations like Arlington and Alexandria prices are very similar to what they were three years ago; they just stopped going up.  The drop in prices, along with the tougher economy, has resulted in more foreclosures, and a large number of short-sales on the market.  (Short Sale:  when an owner sells his house for less than he owes the bank, and gets the bank to agree to take less than they are owed). 

So who wants to dive into a mess like this?  The people buying homes in this market are very different from the ones buying homes in 2005.  Both markets had plenty of buyers who were simply looking for a home to purchase and live in.  But the 2005 market also had many people who were trying to make a quick dollar from the real estate market.  These people helped to drive the market to the high levels it reached in 2005.  

For example, a strategy used by many in the years leading up to 2005 was to purchase a new home before it was built.  The builder would need to build the home before the purchase was finalized, which typically took about a year.  The buyer never planned to live in the house, rent it out, or even make their first payment.  The were simply assuming that the market would be so much higher before the builder finished it that they could quickly sell the brand new home at a huge profit without taking possession for more that a few weeks.  This practice became so prevalent that many builders in Northern Virginia changed their sales contracts to prevent the practice. 

The attitude among these investors and among people who just needed a home to live in was to buy a house fast (and even at a premium price), because it would be more expensive next month, and even next week.  And they were right in a sense.  I did see prices increasing by the week.  Every house that came on the market in a neighborhood would be priced higher than the last one; and then it would sell the first weekend it was on the market.  Buyers were afraid to wait. 

Many people who bought in the years 2004 and 2005 would have a hard time selling their homes right now.  Some have taken the short sale route, and others are just staying put.  I’ve talked to people in the last couple of weeks who needed more space for a growing family, but were planning to stay in their smaller home because they couldn’t afford to sell their home.  Their mortgage is higher than the value of their house.  I talked with another person who was considering a job transfer, but would not be able to take the new job because of their house.  A job transfer would mean losing the large down payment they had put down on their home or renting the house out at a loss each month. 

So why are some people buying houses right now and who are the people that are buying?  In general, I have seen three types of people buy homes, and all for different reasons: 

The Financial Conservative.  This person sat out the real estate market of 2002-2007 when the market quickly rose and then dropped.  If they owned a home they sat tight, and if they were renting they saved their money.  This person lives off less than they make and saves money every month in conservative investment vehicles.  They do not like to take major financial risks and are not emotional about the market. 

Financial Conservatives see this market as an opportunity to buy their home at an attractive price.  They are also willing to sell their existing home at today’s market prices because they will save even more on the larger house they plan to purchase.  The house purchase is value driven.  Though prices are low, they are still looking for the best-priced houses on the market.  Condition is important to this group of buyers also, because they are making the purchase for their own home.  Often this group of people will make a significant down payment (20% or more) towards the purchase of their home, but some will use an FHA loan with a 3% down payment for their purchase. 

The Value Investor.  Value investors look to purchase homes that have a high annual return on investment.  They are not primarily looking at appreciation when they purchase a house, but how much money they will make on a monthly and yearly basis from owning a particular property in relation to how much they had to spend to acquire it. 

They are the exact opposite of the investors I wrote of earlier who invested in new homes hoping they would increase in value before they were built and selling as soon as possible.  The Value Investor benefits on a monthly basis from their investment.  They plan on having their properties increase in value on a long-term basis, but it is not at all important that it happens over the next year or even the next several years. 

This is the first opportunity in at least the last 20 years to invest in properties for value in Northern Virginia.  Prices have not been this low in relation to rents since before 1990.  Before our current market, appreciation of the house’s value had to be a significant consideration in the purchase of an investment property.  Today an investor can purchase a property based on the income it provides and simply wait until that property rises with the rest of the market sometime in the future. 

The Chance of a Lifetime Buyer.  This is a person with an income that would not allow them to purchase a home anytime in recent history.  Many in this group felt that they would never be able to own a home in Northern Virginia.  This home buyer is taking advantage of low prices and low rates on 3% down FHA loans or no-money-down VA loans for veterans simply to become home owners.  People who purchase a home that is similar to the one they’ve been renting are typically finding that their monthly payments go down as an owner. 

The two key elements for this buyer are to have 3% of the house price in cash and good (I don’t mean perfect!) credit.  Obviously you also need the income to sustain the monthly payments, but if you are consistently paying rent on a monthly basis, you probably have it. 

These three types of buyers are the people who are benefiting from the current financial strains on our county and on Northern Virginia.  The one thing all three have in common is that they are not in a hurry to sell the properties they are buying, but are willing to hold the property through turbulent times.  All of these buyers will find their decision to purchase property in this market rewarding when the market recovers, which it will eventually do.

But the FTC’s complaint and settlement on Sept. 9 allege that EMC hit mortgage customers with unauthorized fees, misrepresented how much money they owed, harassed homeowners with debt-collection techniques including “property inspections” that were designed to get collectors into houses illegally, and failed to tell national credit reporting bureaus that borrowers were disputing derogatory reports.

EMC was accused of committing these acts with loans they did not originate, loans they purchased on the secondary market.  So you as a consumer could get a loan with a trusted and honest mortgage company, have that loan sold on the secondary market, and then have your loan serviced by a dubious loan servicing company that gives you improper charges and damages your credit rating over charges that you do not really owe:

“Despite indications that loan data obtained from prior loan servicers . . . was likely inaccurate or unverified, EMC nonetheless used that data” to demand principal and interest payments and late fees from customers who didn’t actually owe what they were being charged, the FTC’s complaint said.

What can a home buyer or borrower do to protect themself from these practices?

1.  Know the terms of your loan, how much money you owe on the loan, and when penalties apply to your loan.  Don’t just assume your lender is right when they send you a bill for a different amount than you think you should pay.  Follow up and UNDERSTAND your loan.

2.  When you get a new loan, get it from a trusted source that doesn’t resell all of their loans.  I’ve written previously on working smart with a loan officer.  Frank has this warning on working with internet lenders. The important element in your relationship with a lender is accountability.  Take seriously the loan officer that your real estate agent recommends.  That loan officer wants to enhance his relationship to your agent by doing a great job for you.  Ask any loan officer you work with what percentage of loans they resell.  I recommend you favor a mortgage company that keeps most or all of their loans.  They can’t promise you your loan will never be sold, but their record will speak for itself.

3.  Keep track of your credit rating.  If your lender (or anybody) gives you a derogatory comment on your report that isn’t factual, you need to dispute it.  Don’t let somebody falsely ruin your credit.

The next step in the process is to send the recommendations of the task force to the Fairfax County Planning Commission who will lay out the specific zoning and regulations required to implement the plan.  The Board of Supervisors will then need to approved those specific changes to the zoning laws of the county.

One issue not addressed in this plan is the nature of the Metro extension that is planned for Tysons.  There has been a long debate on whether the rail should be underground or elevated.  Most seem to prefer it to be underground, but that is the more expensive option.  The issue will likely be decided by the funding made available at the Federal and local levels.

The task force used future economic and demographic estimates provided by George Mason University’s Center for Regional Analysis in developing their recommendations.  The report shows incredible growth in people, jobs, and the economy in Northern Virginia, Fairfax, and Tysons Corner over the next 40 years.  According to forecasts in the report, the population of Fairfax County is expected to increase from 1.03 to 1.56 million people from 2010 to 2050.  Over the same time period, jobs in the Fairfax County are expected to increase from 680,000 to 1,280,000.  These increases represent a great opportunity for businesses and property owners in Fairfax County, but also great challenges for our education and transportation systems.

More on the plan:

Full Report from the Task Force

Washington Post Report

NBC 4 Report (The video on this page shows various people’s reaction to the plan)

1.  I really like baseball.  The most depressing day of the year for me is the day after the World Series ends.  That is the start of the off season; I often cancel my subscription to the Washington Post on that day.  I play on a men’s softball team every fall.  I coach my son’s little league teams.  I go to a lot of Washington Nationals games.  My favorite book that I’ve read is the “Bill James Historical Baseball Abstract,” which will teach you more about life than a whole stack of self-help books.  

2.  My favorite household job is mowing the lawn.  I don’t like other people to mow my lawn.  My kids may get to mow it someday if they earn the privilege.  I loved mowing my parent’s lawn when I was a kid.  When I was 14 I started “Neighborhood Mowing Service” with my friend Eric.  We mowed lawns together for many years.  I love that you have time to think about things, and make your yard beautiful at the same time.  Most of my original thoughts occur while I mow the lawn.

3.  I take my family to a “real” log cabin in Canada for a couple of weeks every summer.  I get to hang out with my family with very few distractions during this time.  The TV only gets one station, and it’s fuzzy.  We spend hours trying to figure out where fish are hiding in the lake.  We fix things we normally would call a repairman to fix, but here there is nobody to call.  We have only an outhouse for a bathroom and our hands to wash dishes.  We only eat the food we bring with us and cook ourselves.  Heat comes from making fires.  We love these couple of weeks every year.  It makes me wonder why the other 50 weeks of the year all the other “things” of life are so important to us.  I love that while we are here I work side by side with my wife and kids on projects we will get to see for years to come, that my little girls know how to take a hook out of a fish’s mouth, and that we forget to look at a clock until we get hungry.

4.  Politics used to be important to me.  I moved to the DC area to get involved in politics.  I got a job working in a Congressman’s office on Capitol Hill.  That lasted about a year.  My impression was there are some good people working there, and some people who are trying to use our political system for thier own purposes.  I decided I was making very little impact on our country, and really not helping anybody accomplish anything of value.  I quit and started helping people buy and sell their homes in 1994.  As a real estate agent, I know I’m not making a huge impact on the country as a whole, but I can make a huge impact on the lives of my clients.  I love it.

5.  About three years ago I traveled to Turkey with the pastor of my church, Vic Ransom.  We arrived in Istanbul having missed a nights sleep and a bit off.  An American we were introduced to through a mutual friend told us that going to a Turkish bath would cure us of our woes.  So the three of us are in a large marble room with fountains and hot slabs of stone.  Vic and I were a little unsure of exactly what to do and felt a little awkward.  When a worker walked in our friend started talking to him in Turkish, apparently placing an order.  Soon these two big burly guys walk in to “bathe” Vic and I.  I wonder if the look on my face was as frightful as the one on Vic’s.  These guys beat us to a pulp as they dumped water over us and literally pounded the soap into us.  Watching Vic go through it made it all worthwhile; unfortunately I didn’t have a camera with me.  I would love to go to a Turkish Bath again, but I’m not sure I would place the order for the “washers” again.  Great memories though.

6.  My wife never makes me a birthday cake.  I like pie better.

Now….to pass on the love.  I’m going outside of the RE.net for some of these–trying to infect other areas too.  If your name is below, you’re it:

Mike Rosen
Travis Watson
Sarah Stelmok
Natalie Langford
Randy Warner 
SuperNoVA Mom

Rules of the meme game:

1. Link to the person who tagged you.
2. Post the rules on the blog.
3. Write six random things about yourself.
4. Tag six people at the end of your post.
5. Let each person know they have been tagged.
6. Let the tagger know when your entry is up.