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DC Market Defies Trends--Time Magazine

January 11, 2012 11:15:56 am

The real estate market continues to flatline throughout most of the country. But in Washington, D.C., housing prices are up a smidgen (0.3%) from the previous month. More importantly, year-over-year prices have risen by 1.3%, a continuation of a happy trend in which prices increased by 2.6% from the year before that. When comparing housing markets in America’s big cities, D.C. appears to be having the strongest and steadiest recovery. But why? What’s making D.C.’s housing market work while others flail? Here are four explanations.

Tight inventory. The Washington D.C. metropolitan area, which as a real estate market includes nearby counties in Virginia and Maryland, never experienced the overbuilding that cities like Miami or Las Vegas did. As a result, when the bust hit in 2006, there wasn’t that much excess inventory in D.C. to soak up. In overbuilt cities, it’s clearly been a buyer’s market for quite some time. But that isn’t the case in D.C. According to a report by the analytics firm Metrostudy, resale inventory in the D.C. area has tightened from 11 months of existing supply in 2008 to just 4.7 months of existing supply this past September. Six months of supply is generally considered a “balanced” market. Anything lower than that is said to give our power to homesellers — which is exactly the situation in D.C. today.
Gentrification. With little new land to build on, D.C. developers are taking over existing multifamily properties — industry jargon for “apartment buildings” — and gussying them up for wealthier renters. This is a strategy that works only when tenants are able and willing to pay rising rents. According to a recent article in City Paper, one developer has been buying up buildings in the neighborhoods of Adams Morgan and Columbia Heights. The story notes that Urban Investment Partners has about $100 million to spend in the D.C. market, which means that at current prices it could buy another couple dozen buildings in addition to the portfolio it already owns.
Lack of foreclosures. In many metro markets, a wave of foreclosures hitting the market has caused downward pressure on housing prices. In contrast, a D.C. foreclosure prevention act — passed in 2010 and updated this summer — has slowed the timeline in favor of distressed homeowners. Whether the intervention has bought a troubled market segment valuable time to recover, or whether it has simply delayed the inevitable, remains to be seen.
Jobs. While Washington, D.C., proper has a higher unemployment rate than the national average, that rate fell as more jobs were added in November, according to The Wall Street Journal. What’s more, many of D.C.’s suburbs in Virginia and Maryland have among the nation’s lowest unemployment rates, and a lot of the jobs in the D.C. area are good ones. By one estimate, one out of every eight D.C. workers is tied to the federal government — and even though their cost-of-living raises were canceled this year, wage growth of 1.3% kept pace with the private sector, reports USA Today. More importantly, those jobs are highly paid (an average of $75,296) and with good benefits — just the kind of financials that mortgage lenders like.

Sadly, the four factors that make D.C. so special aren’t necessarily easy to replicate. For instance, it will take time for excess empty housing inventory to be filled with residents in overbuilt cities such as Las Vegas. On the other hand, when metro areas such as Atlanta (which has undergone a 12% drop in housing prices year-over-year) wonder what recovery looks like, they at least have a beacon: a shining city on a hill, with not that many new homes for sale.

Posted in Market By Tommy | No Comments

Whats going on with rates?

September 21, 2011 8:41:03 am

Ben Bernanke claims "rates" will stay low into 2013-

Bernanke is Chairman of the Federal Reserve. He and the members of the Board have one main goal. Keep the economy growing and take action if it stops growing or starts moving in the other direction. Fairly simple right? We do not need an MBA or degree in economics to understand the basics of what this means to us right now. When we see the headlines "Fed keeps rates at Zero", or "Fed to keep rates low through 2013", that does not mean that the mortgage rates are at zero or that they will stay low until 2013. Or even until next month. Why is that?..... The Fed Funds Rate is the overnight lending rate from bank to bank. This is the rate the Fed controls. Which is in essence the driver for borrowing costs of companies in America as well. This also impacts the Prime Rate. Another rate that is not tied to the rate on your buyer's first mortgage. Meaning....

When the borrowing costs for companies looking for capital goes down, they traditionally borrow more money to invest in themselves. Here is an example and how it impacts mortgage rates. ABC Pharmaceuticals can now borrower money for research on a groundbreaking drug. They borrow $250 million to put into a project they expect to increase revenue and growth by 10% Once investors hear of this, as ABC intends, investors start buying up ABC stock like hotcakes. As they see a great chance for a 10% return on investment.

So where do the investors get this money? Well they go grab it from where it has been sitting safely getting almost no return. The Bond Market! As the mortgage bonds start selling off, the mortgage rates start heading up. This alone would not produce a giant swing in mortgage rates. As one company among thousands does not posses enough of an economic driver to do that. What could do something like that is if China sold off 1/4 of their US mortgage bonds. Not a realistic scenario. But here is what would cause a huge jump.

- If we see strong job growth or other signs of strong economic growth in general, investors will begin to pour into the stock markets again. Which is the job of the Federal Reserve to facilitate happening. It also happens to be what both political parties, the current administration, the global economy, and every last American hopes to see. As this will signal a change back to the days of higher returns on CD's, Savings Accounts, 401K's, you name it. However it comes with a cost....

The sacrifice will be the low mortgage interest rates. Rates are artificially very low right now. Economically speaking, the low rates are a symptom of the greater financial sickness we are infected with as a nation. A good symptom for homebuyers/seller but one that all of the economic powers hope to see cured. So know this. The Fed, the European Central Bank, and the Global Investment Banks, work day and night to get the economy to recover. And once recovery starts, the mortgage rates will start climbing. When will this happen? No one knows. However what we do know that all of the economic powers that be, are working tirelessly to come up with recovery policies that will in turn drive mortgage rates up. No one will trade economic ruin for low mortgage rates.

The only group of people that want to see rates stay historically low are those in the room right then and there. And this only for one transaction's purpose. Knowing this, the time to buy based on where the rates are, is now. Could they drop lower? Absolutely. What will cause them to do this? Events that the world's financial powers are doing everything to prevent happening. It is a great market for buyers as well as sellers. Getting greedy on either side has enormous risks. Current lending products that allow for more lax scenarios can easily go away. (Less that 20% down) The market could turn heavily to a buyer's market, dropping the value for sellers. If the rates go up higher, and the lax lending options go away, the pool of buyer's will shrink significantly.

Anything can happen and no one can predict the future. The only thing we can do in our industry is report the facts and reality of our current market. The facts are that right now the rates are historically low. Our market has seen value increases for the last 2 years while other markets have declined significantly. It is a great time to buy and we are in the best market to do so currently.

Posted in Buying By Tommy | No Comments