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Selling page 2 Buying page 3 Summary page 4
The priority of this publication has always been to offer the reader a factual understanding of the fundamental drivers of the real estate market within the DC Metropolitan area. We avoid any tendency to “sell” a perspective or convince the reader of a particular point of view. While we are always proud of who we are and what we accomplish, we’ve stayed away from making this a commercial for our real estate service companies. We believe that simply setting forth facts, allowing readers to reach their own conclusions, is something that sets us apart. This issue will honor the same principle, however, there are some recent accomplishments that deserve a commercial. We also feel it important to recommend a strategy for potential purchasers and sellers that are contemplating a transaction within the next twenty four months. Certainly, we will continue to provide the data which affords the reader a factual basis for reaching their own conclusions, but right now, much of what will determine real estate values is not statistical, but political or policy driven factors. Few in our industry are confident in forecasting more than six months out unless the forecast pertains to the long term outlook. Most would agree that real property will have a greater value ten years from now than it does today. Home ownership is once again about providing shelter for one’s family, achieving some tax advantage and the potential of someday living in a “paid for” home. Not many possess the risk tolerance or personal resources to speculate for short term gain. We are within a cycle where values have stabilized, inventory has returned to a more normal level and home ownership is more affordable than at any time I personally recall. Unfortunately, we recovered from the preceding foreclosure market through artificial means and not through a market driven solution. In many ways, we have postponed rather than dealt with the fundamental problems. The big question now is whether we think policy makers will sustain their intervention long enough to smooth out the journey to a lasting recovery. This is a yes or no question. If you are considering a real estate transaction, you have to answer.
Amy DeBok, Realtor
6641-A Old Dominion Drive Mclean, VA 22101 Cell: 703-618-2601 email@example.com www.amy.debok.c21nm.com
CONGRATULATIONS NEW MILLENNIUM!
Why Our Success is Important to You!
Our brand, CENTURY 21, is the most recognized name in real estate. The CENTURY21 system is comprised of over 8000 independently owned and operated real estate offices, world wide. For several years, our firm has ranked in the top ten CENTURY 21 firms in the United States. I am extremely proud to tell the world that my company, CENTURY 21 New Millennium, is now the Number 1 CENTURY 21 firm in the United States of America. I need to say it again. NUMBER 1! We are very proud. So why is our success important to you? Obviously the real estate market since 2005 has been no gentler to real estate firms than it has to individuals. In a market where fewer homes are being sold, for less money, our business is up; considerably. We bring the same energy and discipline with which we run our business, to each client we represent. For us to be successful, our client needs to be successful first. Everything begins with analysis, whether it pertains to our firms business plan or a custom marketing plan for a seller we represent. To develop a valid strategy, we need to first understand the competitive aspects of the market we are competing within. Only when we have the fact based understanding of our situation, will we have the confidence needed to make good business decisions. Our analytical skills set us apart and prepare our firm and our clients to position themselves effectively. While it sounds rather simple, a written plan is fundamental to success and is another area where our conduct sets us apart. Every entity and individual within our firm works from a written business plan. Every seller we represent collaborates in a written marketing strategy, which we implement together to meet the client’s objective. Every plan is unique and based upon the individual circumstance of the seller. Execution, accountability, and communication are key to our mutual success. We became the most successful firm in the most recognized brand in real estate by effectively representing one buyer and one seller at a time. We analyzed the competitive environment, made a plan and executed the plan each day. Analysis of our circumstance today tells us we represent an abundance of ready, willing and able
buyers for which we lack a sufficient inventory of homes. Simply put, we have buyers and we need listings. Our business is built upon referral of new clients from those we have served well in the past. We need your help; and if they have a real estate need, your friends need our help. There is really no such thing as a simple real estate transaction today. An agent’s performance can save or cost a buyer tens of thousands of dollars. For sellers, the risk is greater. An agent that takes a casual approach to representation could cost a seller hundreds of thousands or put them into bankruptcy. Our representation is thorough, honest, and our results speak for themselves. Please consider helping everyone by creating an opportunity for us to compete for their business.
MARKET TRENDS | SELLER’S CONSIDERATIONS
POLICY, PROGRAMS AND PERSPECTIVE
All real estate is local and we are fortunate to reside in the DC Metropolitan Area. Circumstances relating to real estate are more positive here than in most metropolitan areas of our country. It is hard to feel good about significant equity losses over the last few years, but there are many others that would trade places without question. According to RealtyTrac, an industry tracking and analysis firm, 2.8 million homeowners received at least one foreclosure notice in 2009. They estimate that 4.8 million will go in to foreclosure in 2010 and there are up to 7 million homes upon which lenders have foreclosed, but not put up for sale. Lenders holding on to foreclosed inventory are doing so in order to prevent an over supply. Excessive inventory would result in a return to declining values. In a declining market, lenders will shed foreclosed inventory as quickly as possible to avoid selling at even lower value. Potential sellers must now understand the normal market characteristics and weight their conclusions with the probability of government action or inaction. Some feel we would have been better off if the government would have simply allowed the market take it’s course and let the chips fall where they landed. Others feel the government has not done enough. What seems certain 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 to accurately 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 right now than there will be if the credit goes away. A potential seller needs to conclude right now whether there will or won’t be another extension. Interest rates remain near historic lows. Low rates mean more people qualify to purchase a home. Rates are artificially low and if they increase, which most feel they will, fewer people qualify. The smaller the buyer pool becomes, 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 a two year window. Now is a great time to sell if selling one home and buying another. Certainty has a value.
We discussed the number of homeowners who are active at some stage within the foreclosure process. The initial distressed segment in 2006 through 2008 were families who acquired or refinanced homes using sub prime, adjustable rate mortgage products. If you have confidence in Realtytrac statistics, 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 inventory. If that happens, there seems little alternative to the market finding new lows. There are already indications 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 adjustable 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, price movements 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 be absorbed, prices should stay flat or increase modestly. It will still take a while.
FORECLOSURE DRIVEN MARKET — VALUE TREND
The first “tsunami” of foreclosures hit our market in the early part of 2007 and were the dominant inventory category until the Spring of 2009. During that two year period, we saw the average sold price in our market decline from $585,000 to about $390,000. The decline was on average a third of market value. Until that time, there were many that would have never believed that could happen. Since then, inventory has continued to decline but much of the limitation on inventory is due to programs which may not be a permanent resolution of the property. Prices have recovered somewhat as a result of the inventory controls.
Inventory Level - Average Sold Price Relationship
$700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
Avg Sold Price Active Listings
MARKET TRENDS | 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 between 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 thousand dollars borrowed, rather than $5.36 if the interest was at today’s rate, around 5%.
Cost of Funds by Interest Rate
$7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 Monthly Paym ent per Thousand Dollars Borrow ed
Purchasing Power by Interest Rate
$1,200.00 $1,000.00 $800.00 $600.00 $400.00 $200.00 $0.00 Loan Am ount per $5.36 in Monthly Paym ent
st Ra 5. te 25 0 5. % 62 5 6. % 00 0 6. % 37 5 6. % 75 0%
TO BUY OR NOT TO BUY, THAT IS THE QUESTION
Home ownership is still the “American Dream” and if you plan to stay in one place for at least a few years, there has never been a better time to buy. Although it is likely our dreams are more modest than in the past, the great majority of Americans would prefer to own their home rather than rent. “Owning a home” may also have a different definition that it did just a few short years ago. Maybe then, it meant we were making a mortgage payment rather than paying rent. Now it means we have finished making the mortgage payments. We have returned to some “old fashioned values” which would make our parents proud. This change in perspective is the direct result of an economic cycle unlike anything most of us have experienced. Like a homeowner considering a sale, prospective purchasers have considerably more to weigh than in the past. Have home values truly passed the bottom or will another wave of foreclosures occur and take prices down substantially farther? Will legislation continue to limit inventory growth? Will interest rates stay low? Will the first time and move up buyer tax credits 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 but at some point, the rearview mirror will show a missed opportunity. There is substantially more information available today than there was when this cycle began. Depending upon what community within the Metropolitan area a buyer is considering, prices are still as much as forty percent below their peak. Last year at this time 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, the worst is behind us. We should not expect double digit appreciation but double digit decline is unlikely. Banks are becoming more adept at modifying loans for distressed borrowers. Their goal is to keep the borrower in the home; a payment coming in while the home’s value improves. Borrowers are more motivated to stay the course in an improving market. Strategic defaults will no longer be accepted by lenders and short sellers will no longer find lenders willing to forgive the deficit loan amount. We are already seeing lenders that foreclosed in 2007 begin to pursue the deficiency judgment recorded at foreclosure. Short sellers in that same time period who did not obtain a release of liability for their negative equity are now being sued in an effort to collect the deficiency. Many of these sellers were not aware 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 collection efforts will discourage some from short selling and further limit inventory. If your plans include a home purchase in the nearer term, you will be hard pressed to find better circumstances. The tax credits may or may not be extended. Interest rates probably will not get lower and will likely rise. Unless there is further catastrophe, prices will stay flat or increase slightly. You may, just may, purchase for slightly less. If you choose to wait however, odds are, that you will pay more each month.
In te re st
R at e 5. 25 0% 5. 62 5% 6. 00 0% 6. 37 5% 6. 75 0%
CENTURY 21 NEW MILLENNIUM | REAL ESTATE NEWS
If you are considering a real estate transaction, thorough analysis and competent representation are essential. We are in a transitioning market. There is potential for profit, as is there risk of loss. If we understand the underlying facts, we can continue to make good business decisions logically and without emotion. I am a real estate professional and accept responsibility for keeping my friends, neighbors and business community informed as to all aspects of things affecting the real estate portion of their holdings. If you are currently listed for sale, this is not a solicitation. If you have a real estate question, I will be happy to answer it, or find the answer. If you have a real estate need, I will appreciate an opportunity to compete for your business. Our team is very good at what we do… our results demonstrate that. Don’t settle for less. Sincerely,
Realtor 6641-A Old Dominion Dr. McLean, VA 22101 Cell: 703-618-2601 firstname.lastname@example.org www.amy.debok.c21nm.com
6641-A Old Dominion Dr, McLean, VA 22101 www.amy.debok.c21nm.com
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