Mortgage Interest Deduction--Is It Necessary?

One of the options in the Bowles-Simpson Deficit Reduction Plan includes the removal of the mortgage interest deduction that homeowners currently enjoy on their taxes. Many in my industry are opposed to the removal of this deduction because they are afraid it will further cripple the housing market. I have not been a fan of government intervention in the housing market for a lot of reasons (see my past blogs) yet I find myself in the curious position of defending this current deduction.

For the first time in American history, the current generation will not be more prosperous than previous generations. We need to leave our children a better legacy. We need to leave them a government that is not in debt, a job market that is equally as innovative and robust as the one we have enjoyed, and homes and communities that provide a safe and stable atmosphere where families can learn and grow and thrive.

I have shown hundreds of foreclosed houses and vacated short sales over the last couple of years. It is still shocking to me to see what was once a beautiful home destroyed by the homeowner prior to vacating. Even if a previous homeowner has not purposely destroyed a house, it is my experience that a house vacated under financial duress immediately succumbs to the elements—bugs take over, bad smells emerge, wood rot sets in, mold thrives—almost as if the house knows it is no longer loved. Another type of house that tends to fall into disrepair quickly is a house that is tenant occupied instead of owner occupied. Of course there are exceptions to every rule, but in my experience, someone merely paying rent does not maintain, clean, or seem to care about the home they live in as much as someone who is paying a mortgage. 

Drive through any community that has been ravaged by foreclosures, and you will see the bigger impact that this has on shopping centers, schools, the safety of neighborhoods, property values, and community moral.

Today, we have a housing market where foreclosed homes make up at least 25% of each local market—homes that are vacant, possibly destroyed, probably in disrepair. Some local markets have an even higher percentage of foreclosures, and this percentage does not include short sales which are often vacant and suffering from the same conditions. Today, we have a housing market where very few people are in a position to buy so many of today’s buyers are investors who will be renting their investments out to tenants. Those people that are able to buy are choosing instead to rent. Why aren’t qualified buyers buying? Because they are afraid to commit to a mortgage when they are not sure their job is safe. Because they have no desire to buy a home that is going to lose equity. Because they do not want to be saddled with a house that they cannot sell if family or job or circumstances create a need to move. Because houses take a lot of work and money, and most people have very little of either these days. 

If today’s housing market continues, we will be a nation of renters, not homeowners. This is not the legacy I want to leave for my children. I do not want my children starting their own families in homes that have not been loved and maintained, or in communities where residents do not have a stake in what happens to their home or community. While we do not want homeowners that cannot afford the homes they buy, we clearly do need owner-occupied homes, and that means we need more buyers that are not investors. There is no one magic bullet that will solve the current situation. The job market needs to stabilize and start producing more jobs. Consumer confidence needs to return. The economy needs to strengthen so it can support growth. Until these things happen, there are very few buyers that will want to commit to a mortgage let alone qualify for one.

I have faith that in time, these things will happen, but it will do little to erase the stigma that is now attached to homeownership. At the same time we are focusing on getting the debt under control, stabilizing the economy, and growing jobs, we also need to make sure we are laying a foundation that encourages homeownership—not irresponsible, everyone-deserves-a-home homeownership, but financially responsible homeownership so that we do not continue to have whole towns that are wiped out because the surrounding neighborhoods are no longer desirable to live in.

In more normal days, as buyers were weighing the pros and cons of renting versus owning, the mortgage interest deduction was a huge factor in the math equation. While homeownership was often more expensive when you added in the real estate taxes, HOA fees, maintenance costs, insurance, etc., the substantial tax break that the mortgage interest deduction offered was often enough to off-set the difference between renting and buying. At a time when we desperately need responsible buyers to ensure the stability and continuity of home and community, now is not the time to remove one of the last, logical, financially sound, reasons to buy.  

NVAR September Statistics

The Northern VA Association of Realtors (NVAR) has published September's housing market statistics. The real story is in what the data might be pointing to, but first this month's statistics and charts.

NVAR September Market Statistics

Monthly Inventory v. Monthly Home Sales since January, 2005

August and September Inventory Since 2006

August and September Home Sales since 2006

Just after the local housing market collapsed at the end of July, 2005, I pulled all of the past inventory and sales numbers and charted them in relation to each other. I was surprised to see that the two lines had intersected each other back in March, 2005. I realized then that had I been paying attention to the relationship of these two numbers a little more carefully, I would not have been so surprised by what happened to the market just four months later. I have been charting these two numbers in relationship to each other ever since.

For the first time since July, 2005, these two lines, instead of running relatively parallel or even moving towards each other at this time of year, are actually diverging. To me, this indicates a local housing market that is on the verge of collapsing again unless one of two things happen (or even both!): 1. Inventory reduces. 2. Buyers start buying again.

From 2001-2003, the number of active listings and the number of homes sold ran relatively parallel to each other. At the end of 2003, the latest real estate boom started and ran through March, 2005. From 2005 through 2009, the number of active listings always started to converge with the number of homes sold at the end of the year...until this year. Take a look at the following yearly charts:

Fall in Northern VA

Every time fall comes around, I am reminded of one of the many great reasons to live in Northern Virginia--the amazing fall foliage and weather. I was out in the Shenandoah Valley on Saturday, October 16, 2010 to enjoy the Hot Air Balloon, Wine & Music Festival at Long Branch in Millwood, VA as well as the BEST hamburgers around from Local SixFortySeven's food cart at the Locke Store in Millwood.

I hope you enjoy Virginia's beauty as much as I do!

Traffic jam in Millwood, VA. I couldn't resist!

Halloween Haunts & Happenings in the DC Metro Area

Wow...who knew getting the YouKnowWhat scared outta ya could be so popular! The DC area is jam packed with things to do this month for Halloween. Enjoy!

VIRGINIA

Alexandria:

• Poe In Alexandria at the Lyceum  October 30: Actor David Keltz returns to The Lyceum to re-create Edgar Allan Poe’s visit to Virginia in 1849, shortly before he died. Keltz performs varying selections each year, but the program always includes a chilling story or two such as “The Black Cat,” “The Cask of Amontillado,” or “The Tell-Tale Heart,” along with well-known poems “The Raven” and “El Dorado.”
• Death Visits Carlyle House  October 30: In the fall of 1780, Death visited Carlyle House and claimed the life of town founder John Carlyle. Step back in time and be part of his historic funeral as you learn about mourning practices in early America. Admission includes a ghost tour of Old Town Alexandria, during which participants will visit the candlelit Carlyle House to view the coffin and pay respects to surviving family members. At 9:00 pm, join the funeral procession as the pallbearers carry the coffin from Carlyle House and proceed south on Fairfax Street to the Old Presbyterian Meeting House Cemetery. A short, 18th-century graveside service will be held by lantern-light at John Carlyle’s grave.

Bluemont:

• Pumpkin Glow Night   This spectacular display of over 1500 carved and lighted jack-o-lanterns carved by local school children is simply amazing. The magical moment when we cut the lights will take your breath away!  Bring your carved Jack-o-lantern to enter in our carving competitions. Jack-o-lanterns are judged for Best in Glow, Scariest and Funniest. Warm yourself by the bonfire and roast some marshmallows. 

Bristow:

• Spirits of Historic Brentsville Step into the past of Brentsville during this unique historic "ghostly" experience. Along your guided tour you will meet the spirits of people that once lived, worked and faced execution in Brentsville during the 1800s. These candlelit vignettes will give detailed insight into the past of Prince William County.

Centreville:

• Fields of Fear  Cox Farms scary night-time adventure!

Chantilly:

• Air & Scare  October 23: Discover the spooky side of air and space at the Udvar-Hazy Center’s sixth annual Air & Scare! Arrive in costume for safe indoor trick-or-treating. Participate in creepy crafts, spooky science experiments, and other Halloween-themed activities. Bring the tiniest visitors by the Tot Zone to play dress-up and hear a story. Don’t forget to stop by the face painting station or pose for a photo with your favorite Star Wars character! FREE admission; parking $15 until 7 PM.

Clifton:

• The Clifton Haunted Trail  Once a year spooky event that winds through the 8 acre Buckley Park and will include 15 new and improved skits including re-enactments, popular scary movie scenes and plenty of freighting lighting and props. The event also features Monster Movies Under the Stars. Hot apple cider, cookies and snacks will be available for sale and all proceeds will go towards Save Clifton Elementary Project.

Doswell:

• Halloween Haunt at Kings Dominion 

Leesburg:

• Oatlands After Five: Paranormal Tour   Our tour guides will share exciting ghost legends and personal tales of unexplained happenings on the property.  Guests will also learn about the findings of the ongoing paranormal investigations at Oatlands.
• Virginia Scaregrounds   Today, Paxton Manor has been transformed into a Haunted Mansion providing you with an abundance of paranormal, bizarre and frightful experiences. Note this: if you decide to visit you will be helplessly afraid. THIS IS NO JOKE! A visit to Paxton Manor is not for the faint of heart – this is a PG13 event unlike anything you have ever witnessed. Without a doubt, this is the best haunted experience in all of the Mid-Atlantic States. So join us if you dare...

Luray:

• Darkwood Manor  DarkWood Manor is a haunted house attraction located in down town Luray, VA. We are not your typical haunted house. We combined detailed sets, movie quality make-up, and talented actors to create a scary and unique haunted house experience.
  

Remington:

• The Un-Lucky Inn  "Where guests check in, but they don't check out..."

Sterling:

• Halloween Woods  "Northern Virginia's scariest Haunted Halloween attraction! Haunted Houses are for sissies! Can you face the Haunted Forest at Halloween Woods?" 
• Terror After Dark  Dulles Town Center in front of Macy's

Vienna:

•  Vienna Halloween Parade  October 27 at 7pm

Warrenton:

• Haunted Hollow  "We recommend children under 13 have an adult to cling on to."

MARYLAND

Bowie:

• Fright Fest at Six Flags

Darnestown:

• Spooky Hollow  Haunted Trail: As the sun sets and darkness invades the forest, our hardier guests can venture out onto the Haunted Trail. They will wander through about 20- 25 minutes of ghoulish frights and terrifying delights. Nighttime at the Haunted Trail is guaranteed to be screaming fun. Spooky Hollow is an exciting time designed for all ages. Spooky Hollow features food vendors, carnival games, fortune tellers, contests, nightly entertainment, and more. Our guests can embark on a fun filled hayride to a pumpkin patch or be transformed into a Halloween creature at our face painting booth.

Dickerson:

• Markoff's Haunted Forest  "Choose from 2 terrifying trails and while you wait, indulge in a dozen other spine tingling events from zip-lines to ghost hunts. The Markoffs have been freaking patrons out for the past 17 years, and every year it gets a little crazier! Don't be a chicken, come walk through our woods."

Greenbelt:

• Greenbelt Pumpkin Walk

Jessup:

• Bennet's Curse  "New amazing scenes and scares! An army of horrifying new characters!"

Olney:

• Field of Screams  "3 awesome Halloween events in one place! The 30-min Haunted Trail, HaverGhast Haunted House and Haunted Hayride await. FOS is 40 acres of the best thrills in the Washington DC/Northern VA area with bonfires, fried twinkies, funnel cakes, and the best hot chocolate around!"

Rockville:

• Haunted Train Ride at Cabin John

Silver Spring

• Silver Spring Zombie Walk

Wheaton:

• Haunted Train Ride

WASHINGTON, DC

• Night of the Living Zoo
• Boo at the Zoo
• DC Challenge Haunted History Race & Costume Bash
• Kennedy Center: NSO Family Concert Spooky Sounds & Scary Tales
• Fright at the Museum: National Museum of Crime & Punishment
• DC Ghost Tours  "Conspiracies, crimes of passion, duels and assassinations are just a few reasons Washington's Lafayette Park is known as "Tragedy Square." Washington DC Ghost Tours features professional tour guides who will show you a Washington DC road map of the paranormal. Dressed in Victorian costumes, our “spirit” guides will lead you by lantern light to discover the true hauntings of the 6 apparitions witnessed at St. John's Church, the poltergeist of the Hay-Adams Hotel and haunted accounts of Lincoln's ghost within the White House."

Sellers May Benefit from a Potential Price Increase

By now you've probably heard that Attorney Generals in all 50 states have launched a joint investigation into questionable, potentially fraudulent, foreclosure practices by the nation's major banks. JPMorgan and GMAC have halted foreclosures in the 23 states that require judicial review for foreclosures after acknowledging "robo-signing" practices where employees sign off on foreclosures without verifying the accuracy of the foreclosure documents. Bank of America has halted foreclosures in all 50 states for the same reason. Today we learn that Wells Fargo, the nation's second largest bank, may also be using "robo-signing" practices.

It appears that for the short term, no more foreclosures will be coming on the market. This could cause as much as a 30 percent decrease in the supply of homes. Today Freddie Mac announced yet a new historic low on mortgage interest rates which should at least keep active buyers motivated. Assuming buyers' demand continues and inventory drops, houses that do go on the market right now could potentially benefit from a bit of a price increase. Even if there isn't a price increase, less competition for the few buyers that are out there will increase a seller's chances of going under contract--all good news for people that have been thinking about selling.

Fall Fun in Northern VA (October 15-17)

I love this time of year...especially in Virginia! The air is crisp, the sky is brilliant blue, the colors are vibrant, and the days are balmy--perfect for getting out and enjoying the rolling hills that Virginia is known for. Here are some great ideas for the weekend. Personally, I'm looking forward to seeing the Hot Air Balloon Wine & Music Festival!

Head out to the Shenandoah Valley and enjoy these activities in Millwood, VA:

Hot Air Balloon Wine & Music Festival

Art at the Mill--Fall 2010 Art Show

Friday Wine Tasting at the Locke Store

Local Fall Festivals (if you know of any others, please email me!):

Cox Farms Fall Festival--Centreville, VA

Belvedere Plantation Harvest Festival--Fredricksburg, VA

Cows-n-Corn--Midland, VA

The Corn Maze in the Plains--The Plains, VA 

Northern VA Homecoming Games

My youngest son is looking forward to his last Homecoming game next week (Wow...wasn't he just 5?). My oldest son and I wouldn't miss it for the world. There might be some of you out there that want to go to your Alma Mater for Homecoming. I've made every effort to include all local high schools. Many high schools have already played their homecoming games, and I have not included them here. Here are the upcoming dates!

Arlington County Public Schools
October 15:

• Yorktown HS
  

Fairfax County Public Schools
October 15:

• Annandale HS
• Fairfax HS
• Falls Church HS
• Hayfield Secondary
• Marshall HS
• Westfield HS
• Woodson HS

October 22:

• Centreville HS
• Edison HS
• Herndon HS
• Lake Braddock Secondary
• McLean HS
• Robinson Secondary
• South County Secondary
• South Lakes HS
• Stuart HS
• Thomas Jefferson HS

Loudoun County Public Schools
October 15:

• Briar Woods HS
• Heritage HS

October 16:

• Broad Run HS

October 22:

•  Loudoun County HS
• Potomac Falls HS
• Stone Bridge HS
• Tuscarora HS

October 29:

• Freedom HS

Prince William County Public Schools
October 15:

• Gar-field HS
• Osbourn Park HS

October 22:

• Brentsville HS
• Forest Park HS
• Potomac HS

October 29:

• Battlefield HS
• Hylton HS

Manassas City Public Schools
October 22:

• Osbourn HS

Politicians should be helping us move forward, not freezing forward movement

Anyone that reads this blog knows that I am not a big fan of government intervention in the housing market. Anyone that reads this blog also knows that I am a big fan of honesty and integrity both in one's personal and professional life. Much of what has happened in the mortgage industry and the housing industry stems from a lack of honesty and integrity in the personal and professional lives of Americans. The government's attempt to "save" the housing industry has simply kicked that can farther down the road.

The latest knot in the housing market unraveling is the admission by the top three lenders that there have been flaws in their foreclosure documentation--putting into question the legality of millions of foreclosures. While I would never condone a lender purposely ignoring the laws of the states they operate in nor their own internal system of checks and balances, I also have to ask myself if we, as a country, have really left them much choice.

Should we let lenders off the hook? Absolutely not! Should we continue to hold them accountable for the mistakes that they made? Absolutely! Can we get blood from a stone? Not the last time I checked.

When I read that one Bank of America official signed up to 8,000 foreclosure documents a month, I started to do the math. I timed myself; it takes me eight seconds to sign my name and ten seconds to sign and turn the page to sign the next document. It would take me 22.22 hours to sign 8,000 documents. Just to simply sign her name would take 16% of this official's work-month. The second part of her admission was that she typically didn't read the documents she was signing. If it takes her 16% of her work-month just to sign her name to one of those pieces of paper, how long would it take for her to read the documents that went with each one of those 8,000 foreclosure files? Oh, and by the way, that is probably just a small part of her job description.

As a Realtor, I lean on lenders all the time to process a short sale faster, give me a response on an offer on a foreclosure faster, redo a BPO (Broker's Price Opinion) because it's four months old... Those are all processes that were a very small part of what a lender did each day. Now lenders are not only trying to stay in business by doing what they have always done--originate loans--they are also tackling short sales, foreclosures, and the selling of foreclosures in monumental proportions. I'm sure this is adding tremendous pressure to already tapped-out personnel and financial resources.

So why am I writing?

Because the reality is that the lenders are not the only bad guys in this. Politicians who encouraged the "everyone has a right to own a house" mentality, investment firms that ignored their own safeguards and purchased risky securities that lacked required documentation, buyers who wanted what they wanted regardless of whether it was wise or even feasible for them to pay the mortgages they applied for, and homeowners who chose to use the equity in their homes to buy luxury items rather than do it the old-fashioned way and save their pennies...all of us contributed to the bits and pieces that added up to the total melt-down in the lending and housing markets.

When my boys were little and something got broken as a result of their rough-housing, I always made both of them clean it up, regardless of whose hand actually did the damage. We all need to be willing to clean this mess up now, regardless of whose proverbial hand touched that last document. As frustrated I am with lenders, I do believe that they are doing their very best to get to the other side of this mountain of foreclosures. It's in their best interest. I'm sure they would rather have homeowners pay on their mortgages rather than have to foreclose. Lenders are not in the business of being landlords. We need to support their efforts to this end, not thwart them.

Home owners that do not make enough money to afford the mortgages they have should not be wasting their lender's time and resources to get loan modifications. Lenders actually learned one of their lessons and are no longer willing to strap a family with a monthly payment that they cannot qualify for nor keep up with. This is a good thing!

Politicians need to stop shrugging responsibility off of their own shoulders by attempting to place it solely on the shoulders of the lenders as they call for a "freeze on foreclosures" as if somehow the lenders continue to be the bad guy. I really think lenders are just doing their best under nearly impossible conditions. There is no question as to the delinquency of the mortgages that are being foreclosed on; there is simply an acknowledgment that proper procedures have not been followed once the delinquencies have occurred. Perhaps a freeze is necessary to shore up the process, but politicians should be asking what they can do to help the process move forward instead of doing everything they can to freeze it.

We Have to Earn Our Way Out

You have to earn your way through life--Trevor and Ian's Mom

My oldest son is working two jobs—one of which is a delivery job for a local deli. He needs transportation, and it can’t be me anymore. I found myself in a Catch-22: support his need to work and buy him a car, or stick to my firm belief that my boys need to earn their way through life and tell him to buy his own car. The reality is that without a car, he can’t work, but without work he can’t buy a car. I wrestled with this dilemma for days before I hit on a solution that I think supports both concepts. I will buy him a reliable used car that he can reasonably repay me for each month for a specified number of years. At that time, the car will be his. This way, not only is he earning the right to have a car, but he has “skin in the game.”I love my son, but he has not always been kind to the family car. Now, it’s in his best interest to take care of this car because he will be paying for all gas and maintenance.

In America they are too full to swallow sorrow--Double Luck by Lu Chi Fa

I just finished reading Double Luck—the story of a Chinese orphan who works hard through adversity to make it to America via Hong Kong and Taiwan. He was sold into slavery at age 5 and was the sole bread winner for his brother’s family at age 9. It’s caused me to revisit my childhood memories in a major way because Chi Fa was leaving Taiwan for America just as I was leaving America for Taiwan. He was 18. I was 5.

To Chi Fa, I was one of those Americans that were too full to swallow sorrow. My first thought was that at age five I was too young to have any sorrow to swallow, but this author had already experienced more sorrow by the time he was five than I experienced my whole childhood. My family lived just outside of Taipei for three years, and while we probably didn’t live the way most of my friends lived back in the States, we lived much better than most of the Taiwanese families that lived in the lean-to’s behind my house. Interestingly enough, my memories of playing with the kids back there all involve laughter and smiles. They didn’t have a lot, but then they didn’t need a lot to be a family and be happy.

I have still joy in the midst of these things--Confusius

In the decades following the Great Depression, Americans were forced to live their lives differently. They learned to save and not take even the smallest luxuries for granted. During World War II they had to fight for their country, their way of life, the freedom that seemed inherently theirs, and in a lot of cases their very lives. That generation of Americans did without, sacrificed, worked harder than many of us can imagine… and in return, they earned every penny they saved, every car they drove, every house they lived in, every privilege they experienced, and every luxury they cherished.

My memories of family gatherings at my grandfather’s house are warm and wonderful and full of laughter. My grandfather, all of his sisters and brothers—one who was even held as a POW in Germany during World War II—and their families all gathered to share and be with each other. It was a time to cherish what everyone had. It was a time to cherish each other and family.

The families that lived behind me in Taiwan didn’t have much, not even a true roof over their head, but they also didn’t have credit card debt, mortgages that they couldn’t afford, or a feeling that their joy was based in anything other than family and friends and that which they earned—including integrity and dignity which is very important in the Chinese culture. In the book that I just read, Chi Fa had many reasons to be bitter, to be full of sorrow, to blame everyone and everything around him. Instead he made wishes on the first star in the night sky and recited Confusius for comfort:

With coarse rice to eat,

With water to drink,

And my bended arm for a pillow—

I have still joy in the midst of these things

We Have to Earn Our Way Out--Margie MacDonald

I think the solution to stabilizing the housing market is to go back to the concept of earning what we have and keeping our priorities in perspective. The mortgage industry has to earn the world’s trust back, and the only way to do this is to operate from a foundation of honesty, principle, and integrity from this day forward. Buyers need to earn the right to own a home, and the only way to do this is to work hard to earn and save a down payment—their skin in the game—and to live within their means. Americans, still, live a better life than most of the world, but we need to refocus our priorities and responsibilities to ensure we don’t lose the privileges of the American way of life.

NVAR August Statistics

The data put out by the Northern Virginia Association of Realtors (NVAR) for the summer months is not as encouraging as last summer's data. Since the expiration of the tax credit, inventory is up and sales are down compared to the same time frame last year.

Northern Virginia Inventory

 Source: NVAR

Northern Virginia Sales

Source: NVAR

Instead of putting bandaids on the effect, we should be curing the cause

While July's home sales figures took many by surprise for its sharp plunge--a whopping 27% from June to July and the largest in over 10 years--the figures were exactly what I was expecting.

It is clear that buyers are not buying, but why?

Unemployment

Probably the biggest factor is the job market. Unemployment figures continue to hover around 10%, and many businesses are unwilling to hire right now for various reasons. The impact of new health care costs, the possibility of higher business taxes, and the lowering of consumer confidence, all create a wait-and-see atmosphere for businesses. Many potential buyers have lost jobs or have taken pay cuts which prevent them from qualifying for mortgages. Buyers that have jobs are fearful of committing to a 30 year mortgage payment when their job future appears to be questionable. 

Tax Credit

While the tax credit seemed to be a good idea at the time, in hindsight it appears that the tax credit simply pulled all future purchases forward. Those buyers that were considering buying over the next year or two simply moved their time frame up so that purchases that would have been spread out over a 12-24 month period were condensed in to a 9 month period. In my opinion, the effect that this had was to artificially inflate prices and demand during this 9 month period. After the tax credit expired, there simply were no more buyers. Anyone that was going to buy, already had.

Interest Rates and Home Values Declining

Today, buyers are hearing that mortgage rates are at historic lows and are likely to go down even more. They are also hearing that the housing market is either in a double dip or will enter into a double dip. Buyers are not in a hurry to buy because they think they will get a lower interest rate and/or purchase at a lower price if they wait.

Expectations

I work with both buyers and sellers. As a result, there are certain trends that I am starting to see. During the months that the tax credit was in place, there was a surge in buyers and a coinciding decline in housing inventory. The surge in buyers was obviously due to the tax credit. The decline in housing inventory was largely due to two factors: banks unwilling to flood the market with too many properties for fear that it would cause values to decline even more and the moratorium that was put on foreclosures in the beginning of 2009. Because banks were not foreclosing on homes for that 3-6 month period, there were fewer homes in the foreclosure sales pipeline while the tax credit was in place. We found ourselves in an expected eye of the storm--a small pocket of time where buyers were actually competing for properties. This caused prices to go up, sales to surge, and many--most importantly, sellers--to feel that the worst was behind us, and normalcy had returned. 

Normal sellers started to return to the market--hoping to take advantage of the active real estate market--but many waited too long. Now inventory is growing as a result of these new sellers, but their expectations are based on conditions that no longer exist: tax-credit-induced buyers and low inventory. Foreclosure inventory has also started to grow: the result of banks once again processing foreclosures both because the moratorium is no longer in place and because loans modified under the Making Home Affordable loan modification program are failing to reach permanent status. Buyers are once again unwilling to buy in a declining market unless they see a deal that is too good to pass up. Sellers haven't quite figured out that market conditions have dropped off the cliff once again so they are unwilling to list their houses for prices that will attract today's buyers.

So where do we go from here?

It appears to me that every program that has been thrown at the real estate market has simply prolonged the inevitable. The tax credit did not revive the housing economy; it simply pulled demand forward and created unrealistic expectations on the part of sellers. The Making Home Affordable program ignored two important facts: many home owners were defaulting on loans because they couldn't afford the loan--having lied to qualify for the loan in the first place, and home owners were unwilling to pay for a house, no matter how attractive the terms were, that would never regain positive equity in their life time.

I would like to see the real estate market allowed to run its course naturally. I know this means that in the short term existing home owners will lose even more equity than they have already lost, but I think in the long term this is the only way for values to truly level out to levels that can be sustained by the current economy--levels where today's buyers are willing and able to purchase. Fear of sustained or growing unemployment, pay cuts, tightening credit, and rising down payment requirements are make it harder for today's buyer to purchase. 

The real estate market might have been the cause of this economy, but it is now the effect. Instead of putting bandaids on the effect, we should be curing the cause--the economy as it affects the job market.

NVAR January Statistics--Now is a great time to sell!

The Northern VA Association of Realtors (NVAR) January statistics are an interesting combination of trends. Medium home sales prices increased 13.75%, days on the market decreased 38%, inventory decreased 24%, and sales ticked up almost 1%, from last January.

The trend that we should also be aware of is how January compares to the last several months where the real estate market was greatly affected by buyers who were trying to take advantage of the expiring tax credit. Beginning in June, the number of monthly sales as a percentage of active listings averaged 26%. That percentage dropped dramatically to 18% in January. Interest rates continue to hover at or below 5%, and for the time being, inventory sits at what is considered a "normal" 6 month supply. The implication of this 18% statistic is that the real estate activity we witnessed last fall was largely fueled by the tax credit.

There is a great window of opportunity to sell right now before the tax credit expires. With low interest rates and the extension of the tax credit, there are buyers eager to buy their first home or take advantage of the move-up tax credit. These buyers do not have much to choose from right now so if you're thinking about selling any time in the next year or so, now is the time to do it! Take advantage of these buyers because the statistics indicate that after the tax credit expires, they may not exist.

NVAR Real Estate Market Trend

 

NVAR Active Listings

 

NVAR Homes Sold