TH versus Condo

I've had a lot of questions lately from buyers asking my thoughts on buying a townhouse versus a condo.

Assuming you are not looking at a townhouse-style condo, there are some lifestyle choices that might help you make a decision. Condos do not require yard work.Condos do not require exterior maintenance. Condos do have shared walls in all four directions. Condos usually have shared main entrances. From an investment perspective, condos are typically the first kind of property to lose value in a down market, but they are sometimes the first thing to gain momentum when a down market starts to turn around because their lower price attracts first-time home buyers.

If your lifestyle preferences do not encourage you to buy a condo, you can certainly get more bang-for-your-buck by purchasing a Fee Simple ownership property as opposed to a Condominium ownership property. In this area, Fee simple ownership typically includes single family homes and most townhouses where Condominium ownership typically includes apartment-style properties and some townhouses. Single family homes and townhouses usually have lower monthly HOA fees: $60-$70. Monthly condo fees start at about $225 in the suburbs and can get as high as $800 for some of the luxury buildings close to Washington, DC. I put together a table to show how this affects a monthly payment. This is VERY generic as it would be too hard to cover all contingencies. The table is based on the following constants:

• 5.25% interest on a 30-year fixed mortgage
• $70 monthly HOA fee for the Fee Simple payment
• $300 monthly Condo fee for the Condo payment
• Taxes that are proportional to property value so taxes are higher for higher loan amounts

Buyers: Plan on Having a Contract Ratified by March

A lot of buyers are trying to get a contract ratified by April 30, 2010 in order to receive the tax credit. I'm recommending that buyers have contracts ratified by mid-March in order to take advantage of these low interest rates!

Many analysts feel 6% 30-year fixed rates are in our near future. Below is a chart that shows how much a monthly mortgage payment will increase between 5% and 6%, and then how that difference adds up over a 5, 10, and 15 year period.

NVAR November Statistics

The Northern Virginia Association of Realtors has published November Statistics. These numbers reflect a surge in sales as first time homebuyers rushed to meet the expiring tax credit. It will be interesting to see what December's and January's numbers bring. Also, most lenders have put a holiday moratorium on foreclosures. We will see this reflected in inventory in the next couple of months so keep this in mind when viewing inventory statistics in the beginning of next year.

Is HAMP Setting Homeowners Up to Fail?

HAMP--Home Affordable Modification Program--is part of the U.S. Treasury's Home Affordability and Stability Plan that was announced last March. In a nutshell, HAMP was established to encourage lenders to modify mortgages so that payments were no more than 31% of a homeowner's gross monthly income. At the time, many Americans hoped the program would prevent the wave of foreclosures that threatened to take away home from many families as well as threatened equity for many homeowners.

While we have yet to get any definitive statistics from Treasury regarding permanent modifications, the anecdotal evidence that is starting to trickle in does not look promising. If you are paying attention to my Tweets, you will have seen many articles that document this evidence.

Why It's a Great Time to Buy

I'd like to preface this blog post by saying that in the short term, I think that housing prices will drop again before we see bottom. The story will continue to be about supply and demand. Right now we are in a bubble where demand (fueled by hungry investors with cash and buyers trying to take advantage of the tax credit) is up and supply (dimished by last winter's moratorium on foreclosures and a pause in foreclosure processing as lenders give HAMP a try) is down. These factors will change in the coming months as I have outlined in previous blog posts: the tax credit expiration will diminish demand, and a wave of defaults as Option ARM loans reset will increase supply.

That being said, if you are planning on purchasing a house and holding on to it for the long-term--either as a permanent residence or as an investment--now is a great time to buy! While we are not at the bottom of the market in terms of price, we are probably at the bottom in terms of interest rates. This week, Freddie Mac announced that 30-year fixed rates are at an all-time low--averaging 4.71% nationally. Rates will not stay this low for long. As I blogged about last week, the Fed's Mortgage Backed Securities (MBS) Purchase Program is due to end next March. This program is what has kept mortgage interest rates low so when it ends, mortgage interest rates will start to climb.

Potential Positive Changes to Current Factors

The green leaves may have turned brown and fallen to the ground, but I am reading about all sorts of "green shoots" today that we should all be paying attention to. Just remember, these are like the green shoots of crocus--sometimes they emerge during momentary thaws in the winter, only to retreat again until spring officially arrives.

If you read my blog post about The Future of the Real Estate Market and Why, then you know that there are several factors that are pointing to downturn in the real estate market next year. Two of those factors, unemployment and the effect that has on mortgage payment delinquencies, and the likely increase in mortgage interest rates when the MBS Buyback Program expires, are showing some positive signs today.

TBD

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NVAR October Statistics

The Northern VA Association of Realtors has published its market statistics for October, 2009. There are a couple of things that I find significant about these numbers:

1. For the first time since the bubble burst, the number of Active Listings is less this October than in October 2005. Until now, Active Listings have exceeded their 2005 equivalent each month.

2. Homes Sold as a percentage of Active Listings has finally hit 20% or more in the last several months. For all of 2006, 2007, and 2008, this percentage has been well below 20%.

The Future of the Real Estate Market and Why

The National Association of Realtors (NAR) published their latest statistics last week that indicated pending home sales are on the rise for the eighth straight month. This, along with a decrease in inventory, has prompted many to declare that the housing market is stabilizing, and the bottom has been seen. It is true that there has been a surge in buying activity in the last several months, and it is true that inventory has been decreasing over the last several months, but the reasons these two conditions exist are not because the real estate market is stabilizing...yet.

What would you say if it was your daughter?

It was the question I always dreaded as a young girl when my dad would talk to me. In an effort to get me to think, he would ask me, "What would you say if it was your daughter?" Oh man...I hated that question!

Today, it's the question that drives my business. I was in a position to help my parents navigate the sale of property in another state last year. My knowledge of sale numbers and statistics as well as foreclosure filings and economic forecasts were invaluable in helping my parents make wise decisions. Each time I communicate with my clients, I ask myself, "What would I say if it was my mom and dad?"

...and we'll throw in a free trip to Disney World!

The last couple of months have been hard on buyers who are trying to find the home of their dreams before the tax credit expires and becomes the stuff of dreams. As I type this, a tax credit extension/expansion appears imminent, but leading up to this week, the under $400,000 market in Northern VA has been crazy. Buyers are having to put offers on four or five properties, or more, before they finally get a ratified contract.

I would be lying if I said that I haven't been grateful for the burst in activity and the effect that the positive statistics have had on consumer confidence. What concerns me is the feeding frenzy that circumstances have created--low inventory, low interest rates, and a tidal wave of buyers that did not exist four months ago--that mimics the boom market that left the balloon debris we are still trying to sift out of.

August and September Active Listings

Following record sales prices driven by low inventory and historically high buyer demand in July, 2005, the real estate market in Northern VA officially headed for a cliff in August, 2005. By keeping track of the numbers of homes sold in relation to the number of active listings each month, we can better understand where the real estate market is headed.

August and September Homes Sold

Following record sales prices driven by low inventory and historically high buyer demand in July, 2005, the real estate market in Northern VA officially headed for a cliff in August, 2005. By keeping track of the numbers of homes sold in relation to the number of active listings each month, we can better understand where the real estate market is headed.

NVAR September Statistics

Each month, the Northern VA Association of Realtors (NVAR) publishes the lastest home sales statistics. Below is a chart tracking the relationship between Active Listings and Homes Sold each month.