What Part of “Bottom of the Market” Do You NOT Understand?

I was looking over the supply of houses on the market this week in Fairfax County, Virginia and it’s really getting dangerously low. Compared to May of 2008, we have 55% fewer homes on the market – and 20% more contracts written on them.

That leaves home buyers with only a 7-week supply of houses and it’s getting smaller. Officially – we’re in a sellers’ market. For pocket markets (townships, subdivisions, etc.) it’s as hot a market as it was in the peek of 2005-2006 – it’s just that the prices are much lower. Ergo – the opportunity. If you’ve ever heard about buy low, sell high – now is the time to buy low.

The same is true across the country. Pending sales are up all over Florida, in Seattle, Phoenix, Los Angeles, Las Vegas, you name it, and buyers are coming off the fence like they were stung by a bumble bee!

For a macro look at how this can benefit you – consider the suburban Washington DC market of Fairfax Countty. If you are sitting in a house purchased in 2000 or earlier, you’re most likely sitting on a lot of equity that could enable you to move up to a larger home with the upgrades you’ve wanted but couldn’t afford.

I know – this sounds like a sales pitch – but frankly – it’s just the simple truth. Sellers and buyers have a unique opportunity to purchase a house at prices that have been backed up several years and at interest rates not seen for decades (currently in the mid-5% range).

In fact – we haven’t seen these kind of rates since they’ve been tracking them at Freddie Mac (http://www.freddiemac.com/pmms/pmms30.htm).

The average price of a 4BR, 2BA house in Springfield, VA, for instance, sold for $235,665 10 years ago. Today, that same house sells at $371,549. While this price is down from the last five recent years, the pricing has leveled and starting to rise in pocket markets throughout Northern Virginia.

And if you’re wondering if the market has turned around consider this – the average days on market for that house in Springfield is down to 18 days. That is not a misprint – NOT 180 Days, but 18 Days – a little over 2 weeks. Many other towns in the area are in the same situation.

So what?

• Inventory is beginning its dip downward because buyers are coming off the fence, the foreclosure rate in the Northern Virginia area has been cut nearly in half (see www.CRA-GMU.org) and
• Regular owners have not yet decided to place their homes on the market yet.
• We are experiencing multiple offers (7 – 10 is not unusual, we’ve seen upwards to 35)
• Escalation offers are back – one of my team members lost a bid after escalating $75,000!

Just remember DON’T MAKE A LOCAL DECISION BASED ON NATIONAL INFORMATION!

Just Leave Well Enough Alone

Yes, I understand we’re in the worst foreclosure real estate market on record; and that a lot of people did a lot of bad things; and that we’re probably only half way through getting through this real estate debacle. However — I just ask that the feds be careful how much they need to push along the recovery in the marketplace — it’s already happening.

On the street, we watch inventory, pending sales and pricing to determine if a market is about to turn around either upward or downward. We could track it in 2006 when it started halting and now it’s tracking upward.

Ahh- you say, the prices are still down. Yep. Because that’s just the final piece of the equation. Prices are down across the country, and they will probably remain soft until the inventory starts shrinking – which is what’s starting to happen.

Consider these sales and pending sales numbers across the country:

• San Jose, CA: Sales up 51% in January 2009
• California: 2008 sales up 26% over 2007
• Northern Virginia (Metropolitan Washington DC): Pending Sales +41%;
• Manassas, VA: pending sales +50%
• Florida: January sales +13%

Market after market, sales are starting their predictable climb upward after prices have dropped by as high as 50% in some areas. Whether we like it or not, feel good about it or not, has no bearing on whether or not the markets are starting to turn around. They are.

(The charts here show Northern Virginia sales price drops that correlate with the number of sales increaseing through 2008.)

In these same markets, agents are starting to report multiple offers on bank-owned properties that need a lot more than just paint and carpet. In my office this week, my team is starting to report that while buyers have finally gotten off the fence, now there’s no inventory and what’s left is selling for $25,000 to $40,000 more than asking price in a shower of multiple offers.

No – this is NOT 2004. It’s now 2009 and we’re about to repeat the whole cycle of the last run up. Why? Simple — supply and demand, mortgage money available and willing/able buyers ready to pick up good deals who have been saving their money for three years for prices to hit the low they’ve been waiting for. Well, it’s hit it and they have pulled out their check books to start the bidding.

It will continue upward as well and here’s why.

1. Lack of inventory. The resale inventory has been primarily been made up of foreclosures and the federal programs to rehash old mortgages and stop the foreclosure cycle will create a drain on the need of inventory. Seller-owned properties are scarece because sellers who are okay financially are upside down on their mortgages and must wait till prices return to their previous levels before they can even consider selling.
2. Prices have hit the psychological low. When you’ve been dealing in prices around a half million dollars for years, a house priced at $300,000 sounds like a real deal. Buyers are diving in with a vengeance and bidding up; again, removing the safeguards of home inspections, home warranties, and appraisals (if they have enough cash).
3. Small new home inventory: New home builders pulled out of the market and must now ramp up again to build the product buyers want. This will take years to get going. They just can’t start building, they have to get the infrastructure planned, permited and approved before they can turn the first shovel of dirt – this takes time.
4. Job growth. As go jobs, so goes the housing market. Several job markets have continued churning out employment even through this latest downturn. Washington, D.C.; Boston; Dallas/Ft. Worth; Houston have added, rather than shed new jobs over the last 18 months. Meanwhile, the surge of the stimulus packages (whether you like the package or not, the attention on the urban infrastructure is a good and needed thing – that will create labor jobs) these jobs will create the need for housing in those markets. States are already applying for and spending the stimulus millions.

Economic growth creates jobs; houses are where the jobs go at night. Meanwhile, the prices have hit the bottom in many areas and already started the surge of buyers jumping off the fence. The inventory is shrinking, the next item to tip will be prices.

Anthony Carr is an award winning sales coach and managing broker in Northern Virginia. He’s tracked and written about the real estate market since 1989. His blog http://commonsenserealestate.blogspot.com. He’s the author of two books and contributor to Donald Trump’s The Best Real Estate Advice I Ever Received.

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.

Whew! The market’s turning

We are ahead of last March at this time by about 10%. Foreclosures are the hot commodity right now, drawing multiple offers left and right. This week, we were involved with two foreclosures — one had 10 offers; another 13.

Prices are stabilizing and moving upward in some areas in the DC market. I’m seeing the same thing happening around the eastern seaboard. See my piece on http://www.realtytimes.com/ (http://realtytimes.com/rtpages/20080305_condotrends.htm) about the bottoming out of many markets across the country.