Spring 2007 Outlook Part 2- THE FACTS

Five Signs that we are in for a better year in real estate:

Ok now that I gave you my opinion of the Spring Market, here are the five major local economic factors driving my opinion:

1. February housing sales are up;
2. Unemployment is low;
3. Median Income is high;
4. Interests rates are forecasted to stay low;
5. Local-area rents are up.

1. February sales are up: The Virginia Real Estate board statistics from the Multiple Listing System (MLS) show that sales of detached, attached, condos and co-ops are up almost 7% in February 2007 over February 2006. While sales are up, the average home price ($504,943) is still down almost 2% in the past year ($514,116 in 2/06). This is an indication that it’s still a buyer’s market- but barely. The pace of home sales year-to-date has also increased 10% compared to last year at this time (Source: Northern Virginia Association of REALTORS )

2. Unemployment is low: The Virginia unemployment rate is 2.8%- well below the national average of 4.5%. As you focus in on the Northern Virginia area, the latest Dept. of Labor Statistics (Dec2006) show an ever lower unemployment rate of:

a. Alexandria City: 2.2%
b. Arlington County: 1.9%
c. Falls Church City: 2.7%
d. Fairfax City: 2.2%
e. Fairfax County: 1.9%

What does that mean for the real estate market? It means that of the new jobs created, there is a pretty good chance the person taking that new job will move into the DC area and need a place to live. (Source: US Dept. of Labor/ Bureau of Labor Statistics)

3. Median income is high: The Northern Virginia area continues to outpace the rest of the country with respect to the demographics of its residents. More than half of the local households in Northern Virginia have at least one college degree and have a median income of $90,129. Specifically, the median income is:

a. AlexandriaCity: $71,091

b. Arlington County: $80,400
c. Falls Church City: $97,225
d. Fairfax City: $78,921
e. Fairfax County: $94,600

Again, what does this mean for the local market? It means that there are more households likely to own property over renting and more likely to stay employed in the local area because of the highly skilled workforce in hi-tech, federal and bio-tech industries. (Source: various demographic stats from county websites. Data from 2002-2006)

4. Interest rates are forecasted to stay low: The local DC area historical data show that when interest rates stay low, more buyers are in the market. This is what drove the real estate prices up over the past five years. It’s not unusual to see a 120% gain in home values since 1999 for the local area. Last year, 2006, everything came to an abrupt halt. Why? Because last year was the first time in more than five years that interest rates for mortgages rose to close to 7%.

When you combine all the above economic factors: low unemployment, highly educated workforce, high median income, with low interest rates, there were a lot of people who are in the market to buy a home. As the interest rate rose faster than the cost of housing didn’t, something had to give. It took a while for the market to adjust because, let’s face it- people can only afford so much house.

In 2006 we reached our limit. When interest rates rose faster than local salaries, people could no longer reasonable afford to buy a house- the value of existing homes had to come down before people would start buying again. Now that interest rates are lower combined with a slight decrease in home values, people are out buying again.

The forecast for 2007 interest rates is bright. The experts tell us that for the first 6 months of 2007, at least, interest rates will stay around 6.5%. This is what’s driving the local real estate market more than anything else. If interest rates raise again in the second half of 2007, you will see the housing market flatten or slow down.

Does that mean you should wait to see if housing prices come down even more? That’s a gamble. There is a relationship to how much mortgage you can carry at different interests rates. Unfortunately, home values don’t come down as fast as interest rate rise. So if you are going to wait, make sure you understand that relationship. This is where a mortgage calculator will come in handy. Play around with the mortgage calculator you are using. Put in different interest rates while keeping the same sales price just to see the difference in your monthly payment. Need a mortgage calculator? Visit my website: www.MaryDeLuca.com
(Source: The Finance Forecast Center)

5. Local-Area RENTS are up: When the sales market slowed down in 2006, we instantly saw the rental market go nuts, especially in Arlington which attracts young people with new jobs who want to live walking distance to a metro into areas like Ballston, Courthouse and Clarendon. The high cost of rents was directly related to the decrease in the amount of first-time buyers. These first-time buyers stayed in the places they were renting. So when the new college grads, new job seekers or the relocated military moved into the area, there were fewer places to rent, driving the demand and the rents up. It was not unusual to see a landlord increase the rent $300/month with a new tenant. Just so you understand, here is a breakdown of the local rental market, on average:

a. Alexandria City: $1,910, increase of 6.3% over 2006 ($120)
b. Arlington County: $2,016, increase of 14% ($283)
c. Falls Church City: $2,176, increase of 20% ($435)
d. Fairfax City: $1,792, increase of 10% ($180)
e. Fairfax County: $1,861, increase of 5% ($93)
Please note that these monthly rents are for private rentals and not rental apartments of which data in not available. Rental apartment rentals may be higher depending on the location and age of the complex. Data are found at www.NVAR.com )

Throughout the real estate boom between 2001-2005, we had a glut of rental units because of all the first time buyers taking advantage of the low interest rates. As those rates increased last year, potential first-time buyers stayed put, leaving fewer rentals on the market. People were scrambling to find a place to live- often competing with other rental applicants. It was a terrible time for people looking for a place to live. As a realtor who helps people with rentals, it was heartbreaking to see people with very few options to their living arrangement. More of their income went to rent. More of their income paid for someone else’s mortgage (their landlord!)

In summary....
When you put together these five factors, they all lead to a brighter spring market. Potential first-time buyers paying high rents want their money to work for them. Last year I heard a lot of “We want to wait and see what happens” from first-time buyers. Many were frightened by the media reports of a real estate bust. It’s been a year and here’s what we learned:

• Housing prices decreased, on average $9,173;
• Interest rates increase from 6.25% to 7% and are now back down to, average 6.4%;
• More houses are on the market;
• Rent increase of $93-$435/month or ~$1200-$5,220/year!
  
  This year is not the time to wait. We are in the middle of a buyers market. It’s not easy for me to show how this small shift in numbers means very little when you are talking about a 30-year mortgage. (I’m not even looking at your tax benefits yet.)
  Go to the mortgage calculator on my website and try it for yourself.
  Here’s your homework assignment:

1. Put in the average home price of $514, 116 with an interest rate of 6.5% (how much you would have bought the house in FEB 2006.)
2. Use an average monthly taxes of $400 & appraised value equal to the home price.
3. Now compare that to what you would have paid around July 2006, $504,943- with a 7% interest rate. Got all that?
4. Now- take the average and see what you can pay for it today ($504,943) with the lower interest rate of 6.4%. See what you come up with.
   
   Not much difference? So what are you waiting for?
   
   It’s time to get moving.
   
   

Spring 2007 Real Estate Outlook- Part 1

April is only a few days away, the daffodils are in bloom, the cherry blossoms are ready to pop and everyone it out and about. Spring….we all love this time of year. We shake off the winter blahs and get moving. Which, for us real estate agents, keeps us busy.

What is going to happen this spring in the DC area real estate market? Of course, no one has a crystal ball. But the warm January gave us, inside the beltway, a positive indication that the market is going to be much better than Spring 2006! Local economists have a bright outlook for the 2007 real estate market.

What do I mean by much better? I don’t mean that owners are going to see a 20% increase in their property’s values. I mean, interest rates are still below 6.5%, the inventory is sizable and the local job market is strong. All good signals that buyers are going to come out this year. In addition, the DC area continues to stand out from the rest of the country with a low unemployment rate, an increase in high-paying jobs and a low inventory of housing. All good signals for homeowners or soon-to-be-homeowners.

How would I describe the first few months of 2007? It’s been a good market and it’s been a strange market. The strange part is the rate of sales in Fairfax County and beyond is spotty while closer to DC, the rate of sales have picked up. Properties are selling quickly IF- and that’s a big IF- they are priced right and are in good condition.

I have been in situations where we are dealing with multiple offers in the first week of listing. What’s different this time versus a few years ago is that buyers are still offering below or at list price and are not yet giving away all their rights just to buy a home. So- it’s a healthy market. A healthy market is a sustainable market. Good news for buyers that want to buy and sellers that want to sell quickly. Gone are the days where you can flip a property in a year to make a large profit. The days of buying a home to build memories in your life are here to stay for a while.

So get moving.