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Newsletter Spring 2010

Newsletter Spring 2010

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Published by adebok

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Published by: adebok on Mar 29, 2010
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03/29/2010

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1
 
INSIDE THIS ISSUE
Selling
page 2
 
Buying
page 3
 
Summary
page 4
 
DEAR NEIGHBOR,
The priority of this publication has always been to offer the reader a factual understanding of the fundamentaldrivers of the real estate market within the DC Metro-politan area. We avoid any tendency to “sell” a per-spective or convince the reader of a particular point of view. While we are always proud of who we are andwhat we accomplish, we’ve stayed away from makingthis a commercial for our real estate service compa-nies. We believe that simply setting forth facts, allowingreaders to reach their own conclusions, is somethingthat sets us apart.This issue will honor the same principle, however,there are some recent accomplishments that deserve acommercial. We also feel it important to recommend astrategy for potential purchasers and sellers that arecontemplating a transaction within the next twenty four months. Certainly, we will continue to provide the datawhich affords the reader a factual basis for reachingtheir own conclusions, but right now, much of what willdetermine real estate values is not statistical, but polit-ical or policy driven factors.
 
Few in our industry are confident in forecasting morethan six months out unless the forecast pertains to thelong term outlook. Most would agree that real propertywill have a greater value ten years from now than itdoes today.
 
Home ownership is once again aboutproviding shelter for one’s family, achieving some taxadvantage and the potential of someday living in a“paid for” home. Not many possess the risk toleranceor personal resources to speculate for short term gain.
 
We are within a cycle where values have stabilized, inven-tory has returned to a more normal level and home owner-ship is more affordable than at any time I personally recall.Unfortunately, we recovered from the preceding foreclo-sure market through artificial means and not through amarket driven solution. In many ways, we have postponedrather than dealt with the fundamental problems.The big question now is whether we think policy makers willsustain their intervention long enough to smooth out the jour-ney to a lasting recovery. This is a yes or no question. If youare considering a real estate transaction, you have to answer.
 
CONGRATULATIONS NEW MILLENNIUM!
 
Why Our Success is Important to You! 
 
Our brand, CENTURY 21, is the most recognizedname in real estate. The CENTURY21 system iscomprised of over 8000 independently owned andoperated real estate offices, world wide. For severalyears, our firm has ranked in the top ten CENTURY21 firms in the United States.
I am extremely proudto tell the world that my company, CENTURY 21New Millennium, is now the Number 1 CENTURY21 firm in the United States of America
. I need tosay it again. NUMBER 1! We are very proud.
 
So why is our success important to you? Obviouslythe real estate market since 2005 has been no gen-tler to real estate firms than it has to individuals. In amarket where fewer homes are being sold, for lessmoney, our business is up; considerably. We bringthe same energy and discipline with which we runour business, to each client we represent. For us tobe successful, our client needs to be successful first.
 
Everything begins with analysis,
whether it pertains toour firms business plan or a custom marketing plan for aseller we represent. To develop a valid strategy, we needto first understand the competitive aspects of the marketwe are competing within. Only when we have the factbased understanding of our situation, will we have theconfidence needed to make good business decisions.Our analytical skills set us apart and prepare our firm andour clients to position themselves effectively.
 
While it sounds rather simple,
a written plan isfundamental to success
and is another area whereour conduct sets us apart. Every entity and individualwithin our firm works from a written business plan.Every seller we represent collaborates in a writtenmarketing strategy, which we implement together tomeet the client’s objective. Every plan is unique andbased upon the individual circumstance of the seller.
 
Execution, accountability, and communication arekey to our mutual success
. We became the mostsuccessful firm in the most recognized brand in realestate by effectively representing one buyer and oneseller at a time. We analyzed the competitive environ-ment, made a plan and executed the plan each day.
 
Analysis of our circumstance today tells us werepresent an abundance of ready, willing and ablebuyers for which we lack a sufficient inventory of homes. Simply put,
we have buyers and we needlistings.
Our business is built upon referral of newclients from those we have served well in the past.
 
We need your help; and if they have a real estateneed, your friends need our help. There is really nosuch thing as a simple real estate transaction today.An agent’s performance can save or cost a buyer tensof thousands of dollars. For sellers, the risk is greater.An agent that takes a casual approach to representa-tion could cost a seller hundreds of thousands or putthem into bankruptcy. Our representation is thorough,honest, and our results speak for themselves. Pleaseconsider helping everyone by creating an opportunityfor us to compete for their business.
Amy DeBok,
 
Realtor 
 
6641
-
A Old Dominion Drive
 
Mclean, VA 22101
 
Cell: 703
-
618
-
2601
 
adebok@teamdebok.com
 
www.amy.debok.c21nm.com
 
 
2
 
MARKETTRENDS 
| SELLER’S CONSID
ERATIONS
POLICY, PROGRAMS AND PERSPECTIVE
All real estate is local and we are fortunate to reside in the DC MetropolitanArea. Circumstances relating to real estate are more positive here than inmost metropolitan areas of our country. It is hard to feel good about signifi-cant equity losses over the last few years, but there are many others thatwould trade places without question.
 
According to RealtyTrac, an industry tracking and analysis firm, 2.8 millionhomeowners received at least one foreclosure notice in 2009. They estimatethat 4.8 million will go in to foreclosure in 2010 and there are up to 7 millionhomes upon which lenders have foreclosed, but not put up for sale.Lenders holding on to foreclosed inventory are doing so in order to preventan over supply. Excessive inventory would result in a return to decliningvalues. In a declining market, lenders will shed foreclosed inventory asquickly as possible to avoid selling at even lower value.
 
Potential sellers must now understand the normal market characteristics andweight their conclusions with the probability of government action or inaction.Some feel we would have been better off if the government would havesimply allowed the market take it’s course and let the chips fall where theylanded. Others feel the government has not done enough. What seems cer-tain is legislation will continue it’s role in the manipulation of home values.
 
The arbitrary influence of law in the real estate sector makes it difficult toaccurately forecast mid term trends. As an example, the first time homebuyer tax credit is set to expire on April 30th. There is likely to be more demand rightnow than there will be if the credit goes away. A potential seller needs to con-clude right now whether there will or won’t be another extension.
 
Interest rates remain near historic lows. Low rates mean more people qualifyto purchase a home. Rates are artificially low and if they increase, whichmost feel they will, fewer people qualify. The smaller the buyer pool be-comes, the more stress we will feel on pricing.The near term opportunity is clear. Rates are low, tax credits are available.Now is a
very good
time to sell for anyone contemplating their sale within atwo year window. Now is a
great
time
 
to sell if selling one home and buyinganother. Certainty has a value.
FORECLOSURE DRIVEN MARKET
 — 
VALUE TREND
We discussed the number of homeowners who are active at some stage within the foreclosure pro-cess. The initial distressed segment in 2006 through 2008 were families who acquired or refinancedhomes using sub prime, adjustable rate mortgage products. If you have confidence in Realtytracstatistics, a sizeable portion of these properties remain unresolved and in the hands of lenders.
 
The graph to the right shows the arrival of a whole new set of Option Arms set to adjust. If left to their own resolution, the vast majority of these loans will default and hit the market as bank owned inven-tory. If that happens, there seems little alternative to the market finding new lows. There are alreadyindications of additional government pressure on lenders to modify loans to avoid this eventuality.While the graphic to the right would indicate that by 2012 we will have absorbed the impact of ad- justable resets, we will not. What legislative intervention has accomplished is the moderation of potentially severe price movement. By slowing the pace of new inventory becoming available, pricemovements were not as abrupt or as deep as they had the potential of being. On the other hand,since the intervention slowed the pace of foreclosure, the duration of their impact will be greater.
 
Effectively, our government has some control over the number of homes that will be available for sale at any given time. If they are effective at meting out this inventory, and at pace that can beabsorbed, prices should stay flat or increase modestly. It will still take a while.
 
CONTINGENT RISK
 
The first “tsunami” of foreclosures hit our market in theearly part of 2007 and were the dominant inventory cate-gory until the Spring of 2009. During that two year peri-od, we saw the average sold price in our market declinefrom $585,000 to about $390,000. The decline was onaverage a third of market value. Until that time, therewere many that would have never believed that couldhappen. Since then, inventory has continued to declinebut much of the limitation on inventory is due to pro-grams which may not be a permanent resolution of theproperty. Prices have recovered somewhat as a result of the inventory controls.
 
Inventory Level - Average Sold Price Relationship
$0$100,000$200,000$300,000$400,000$500,000$600,000$700,000
        J      a      n    -        0        0        J      a      n    -        0        1        J      a      n    -        0        2        J      a      n    -        0        3        J      a      n    -        0        4        J      a      n    -        0        5        J      a      n    -        0        6        J      a      n    -        0        7        J      a      n    -        0        8        J      a      n    -        0        9
02,0004,0006,0008,00010,00012,00014,000Avg Sold PriceActive Listings
 
3
 
MARKETTRENDS| BUYER CONSIDERATIONS
INTEREST RATES AND PURCHASING POWER
The graph below right displays the amount of debt an individual will repay based upon a static payment of $5.36 per month, based upon interest rates be-tween 5% and 7%. The analysis uses a thirty year, fixed rate, fully amortizing loan product. Using a 5% rate, the $5.36 monthly payment will service a$1,000 debt. At the other end of the spectrum, a 7% interest rate, the same payment of $5.36 will service only an $805 debt.The graph below left displays the payment per thousand dollars borrowed. A purchaser borrowing $1,000 at a 7% interest rate will repay $6.65 per thou-sand dollars borrowed, rather than $5.36 if the interest was at today’s rate, around 5%.
 
Cost of Funds by Interest Rate
$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00
   I  n  t  e  r  e  s  t    R  a  t  e   5 .  2   5  0   %   5 .  6  2   5   %  6 .  0  0  0   %  6 .  3   7   5   %  6 .   7   5  0   %
MonthlyPayment peThousandDollarsBorrowed
Home ownership is still the “American Dream” and if you plan to stay in one placefor at least a few years, there has never been a better time to buy. Although it islikely our dreams are more modest than in the past, the great majority of Ameri-cans would prefer to own their home rather than rent. “Owning a home” mayalso have a different definition that it did just a few short years ago. Maybe then, itmeant we were making a mortgage payment rather than paying rent. Now itmeans we have finished making the mortgage payments. We have returned tosome “old fashioned values” which would make our parents proud.
 
This change in perspective is the direct result of an economic cycle unlike any-thing most of us have experienced. Like a homeowner considering a sale, pro-spective purchasers have considerably more to weigh than in the past. Havehome values truly passed the bottom or will another wave of foreclosures occur and take prices down substantially farther? Will legislation continue to limit inven-tory growth? Will interest rates stay low? Will the first time and move up buyer taxcredits be extended beyond the end of April? Should I buy now or should I wait?
 
Many have been rewarded for staying on the sidelines over the last few years butat some point, the rearview mirror will show a missed opportunity. There is sub-stantially more information available today than there was when this cycle began.Depending upon what community within the Metropolitan area a buyer is consid-ering, prices are still as much as forty percent below their peak. Last year at thistime many were fifty percent below their peak and the year before, sixty.
 
If inventory is well managed, which it is in the bank’s best interest to do, theworst is behind us. We should not expect double digit appreciation but dou-ble digit decline is unlikely. Banks are becoming more adept at modifyingloans for distressed borrowers. Their goal is to keep the borrower in thehome; a payment coming in while the home’s value improves. Borrowers aremore motivated to stay the course in an improving market.
 
Strategic defaults will no longer be accepted by lenders and short sellers willno longer find lenders willing to forgive the deficit loan amount. We are al-ready seeing lenders that foreclosed in 2007 begin to pursue the deficiency judgment recorded at foreclosure. Short sellers in that same time period whodid not obtain a release of liability for their negative equity are now beingsued in an effort to collect the deficiency. Many of these sellers were notaware that they still owed the money even though the bank released the lien.Their only choice now is to repay the debt or face bankruptcy. These collec-tion efforts will discourage some from short selling and further limit inventory.
 
If your plans include a home purchase in the nearer term, you will behard pressed to find better circumstances. The tax credits may or maynot be extended. Interest rates probably will not get lower and will like-ly rise. Unless there is further catastrophe, prices will stay flat or in-crease slightly. You may, just may, purchase for slightly less. If youchoose to wait however, odds are, that you will pay more each month.
 
TO BUY OR NOT TO BUY, THAT IS THE QUESTION
 
Purchasing Power by Interest Rate
$0.00$200.00$400.00$600.00$800.00$1,000.00$1,200.00
   I  n   t  e  r  e  s   t    R  a   t  e   5 .  2   5  0   %   5 .  6  2   5   %  6 .  0  0  0   %  6 .  3   7   5   %  6 .   7   5  0   %
Loan Amountper $5.36 inMonthlyPayment

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