Archive for June, 2011

The best I can tell from some quick internet research, financing your home became possible in the United States in the early 20th century, primarily through your relationship with your local banker.  We have come a long way since 1900 in the home financing market as buyers today are able to finance purchases with as little a 3.5% down payment thanks to the FHA option.  Values have also come quite a long way since 1900 in part because of our ability to leverage other people’s cash based on our ability to pay it back over time.

What would happen to values however if financing wasn’t available at all?  This may seem like a farfetched idea, but the reality is this is happening right now in certain segments of today’s market place – namely mixed use residential and commercial buildings.

During the real estate “boom” years of the early 2000s may projects were developed as mixed commercial and residential dwellings, particularly in popular urban areas across the country.  The concept of living where you work/play was (and still is) very popular leading to a number of residential buildings with large commercial components.

The problem is Fannie Mae adapted a rule that says no association can have more than a 52% commercial component and since most banks follow Fannie procedures, many of these mixed use buildings are not financeable on the standard mortgage market.  This is forcing cash sales in these buildings and cash buyers usually want a big discount to use their cash – which is pulling the values down for everyone else in the building.

I currently have a listing in one of these buildings and my client is forced to wrestle with the question – how much is his condo worth when the purchase is restricted to all cash?

I suspect we are about to find out.

Many of our buyer clients are tense right now because despite accounts of a buyer’s market, and desperate sellers, the reality on the ground can seem much different.  A number of buyers are experiencing multiple offers, and very few options.  Why is this? Two big reasons:

  1.       The normal life cycle of someone’s active use of their home runs 3-5 years, after which life changes and it is frequently time to move on.  Because of equity loss, many sellers since 2005 are unable to list their property without writing a very large check, or short selling and destroying their credit.  They are therefore staying put, or renting – pulling thousands of opportunities (listings) from the hands of anxious buyers.

 2.       The foreclosure process in many jurisdictions has halted due to new mediation requirements which has stalled that pipeline as well. This translates into very few buyable opportunities for most buyers in many market categories.

If you’d like more information, contact me.

Here we go again, another report from Case-Shiller saying home prices have fallen across the entire country –except somehow in Washington DC.  I live and work in Washington DC so I’m happy to see that, however, I know I’m not the only one who is exhausted by the rollercoaster ride of stats that say the market is up on Monday and down on Tuesday. 

It is very important to remember home price indices are calculated using a variety of interpretations of the data.  Case-Shiller use data on repeat sales of single-family homes – meaning they look to see what happens with a home sells twice.  Did it sell for more, or for less than it did last time? The full report can be found here.

I want to emphasis that real estate is a hyper local business driven by micro market centers in very very small geographic areas.  We should not panic and think the entire housing industry is on the verge of collapse.  Remember two things: 

1) If you’re not selling right now, and have no plans to do so in the immediate future – who cares what the number show.  Most Americans are not in the market to sell right now and so any gain or loss based on comparable sales in their neighborhood will not be realized anyway. 

2) Your home may very well be performing well and so don’t assume it is not.  Continue to have pride in ownership, maintain your property, and consult with your local Realtor to find out how much your home is actually worth today.