Arlington Condo Blog

Tune in tomorrow morning, June 28 ‘08,  to WJFK 106.7 from 10-11am where I’ll be making a special guest appearance on the contractor.com home show. The weekly radio show is hosted by Eric Steinkraus and Sean Zobaa. I’ll be giving my insight on the condo market, short sales and foreclosures. Don’t miss it! - Rick

According to a recent article in Forbes magazine, DC, Arlington & Alexandria are #10 on the list of top 10 places to buy foreclosed properties. Read the article here or go right to the top ten list.

Why did this area make the list? This area has a high quality of life and a strong local economy. The foreclosure rate is moderate (1.16%) as compared to Detroit (4.9%) and Riverside, CA (3.8%). The median home price in the area actually increased 0.77% from 2006-2007.

Interested in buying a foreclosed condo? Give us a call to get started - 877-460-2544.

Recent indication is that first time home buyers are getting tired of sitting on the sidelines. According to a recent online poll taken by the National Apartment Association, 17 percent of renters plan to make the jump to home ownership in the next year; 41 percent of the 2,041 respondents planned to be home owners within two years. Only 31 percent planned to still be paying rent five years from now.

Another factor that could very soon contribute to an increase in home buying could be rising mortgage costs. Fixed-rate mortgage rates rose to 6.32 percent, the highest it has been since October. After months of aggressively dropping interest rates, many lenders are worried that the Fed will be forced to raise rates back up. As interest rates rise, so do mortgage rates. According to a press release on freddiemac.com, Frank Nothaft, Freddie Mac vice president and chief economist said that, “Mortgage rates jumped this week after a number of Federal Reserve officials, most notably Chairman [Ben] Bernanke and Vice Chair [Donald] Kohn, expressed concern over a threat of inflation.” We may very well be seeing the beginning of the end of the super-low mortgage and potential buyers may realize that with rising rates, now may be the time to jump in. Nothaft added, “Moreover, pending home sales for April unexpectedly rose by 6.3% and mortgage applications for home purchases … were also up last week.”

My good friend Mike has been renting a condo for a number of years. Like many people in the DC area, he is from somewhere else and not sure how long he will stay in the area (how long has it been Mike, 15 years?). He recently sent me an article from the New York Times about a first time buyer and his rent/buy decision.

Here is a link to the NYT article (you may need to sign up for a free account).

Read the article and then continue reading this post. In the article, the author discusses a ‘rent ratio’ to help him in his decision making process. This ratio is simply the sales price divided by the annual rent. A ratio above 20 means the monthly costs of ownership exceed the cost of renting. Over the past several decades the average rent ratio nationwide was between 10 and 14. In the past few years, the ratio got well above 20. With rising rents and lower prices, the rent ratio is approaching the historical average.

The rent ratio is simply the sales price divided by the annual rent.

I thought I would put this to the test and look at some actual number for condos in the Arlington area. The monthly rents and sale prices are what you could expect to find today.

Condo

BRs

Monthly Rent

Annual Rent

Sales price

Rent Ratio

 

The rent ratio is a useful tool in helping make the rent vs buy decision. I’ve worked with numerous first time buyers and there is usually some trepidation - it is a big decision. The usual  response after it is all over is ‘why did I wait so long’. Of course, there are other factors to consider such as condo fees and especially mortgage rates. There are also plenty of non-financial factors to consider such as security and sense of ownership. As rents continue to rise, buying becomes a viable option. Yes, even in this ‘buyers market’.

Mike, are you ready to look at some condos?

There is a lot of talk these days about short sales and what a great deal they are. First, they can be good deals, but don’t expect to pay pennies on the dollar. You will still be competing against other buyers. Two, be patient. The bank approval process can be painfully slow - anywhere from one to nine months. 

I recently represented a buyer in a short sale. We wrote the offer in December ‘07 and ratified it in January ‘08. However, we didn’t get the bank approval until mid-April and finally closed in May ‘08. We had an escape clause if we needed it and we continued to look at other properties. It was a good deal and my client could afford to be patient.

A short sale can be a good deal if you have patience. The deal can take anywhere from one to nine months to close - if it even goes to closing.

What is a short sale? A short sale in real estate is a transaction where the seller’s mortgage holder agrees to accept less than the full amount owed on the loan. The bank is getting ’shorted’ on its money, thus the term short sale. Why would a lender agree to this? A lender agrees to a short sale to avoid foreclosure proceedings, which can be expensive in their own right. Banks are not charities and don’t enjoy losing money on a loan, but in some cases they would rather take a small loss now rather than a potentially larger loss in the future.

So, your condo is worth less than what you owe on the loan and you want to sell. Just do a short sale, right? Not so fast. You also have to show hardship. Are you current on your payments? If yes, then no short sale. Still have a job and money in a savings account? If yes, then no short sale. For the seller to get approval for a short sale, the seller will need to show the bank some form of hardship - medical reason, job loss, other financial loss - that will prevent them from meeting their loan obligations. As I mentioned, bank are not charities and don’t enjoy losing money. 

If you are still current on your mortgage payments, then you are not a candidate for a short sale.

OK Rick, I get the fact that banks don’t want to lose money, but why does the deal take so long?  The easiest part of the deal is making the agreement between the buyer and the seller. The seller is eager to sell, thereby avoiding foreclosure, and the buyer is eager to buy the the condo at a good price. However, the bank wants to minimize its loss and will do its due diligence. If there are two banks involved (i.e. a first and second trust or mortgage) that will only complicate things.

OK Rick, I am a buyer looking for a good deal, where do I start? First, get yourself an agent that knows the short sale process (shameless plug - call me). Short sales have been rare until this recent market and many agents are inexperienced with them. Make sure your contract is written so you have an escape clause to get out of the contract. Since it can take many months, you don’t want to be stuck in contract if your situation changes - or if you find something better.

How do you know if a listing is a short sale? Often you don’t always know until you start to write the offer and inquire with the listing agent. In the remarks section in the listing, agents will often enter ’short sale’ or ‘third party approval’. Here is a link to listings of condos in Arlington found with this criteria:

Short Sale or Third Party Approval

For other areas or housing type, contact me.

The Palatine condo in Courthouse is the latest condo project to go the rental route. The sales office had closed many months ago and was initially expected to re-open in the fall when the project was near completion. Buyers who had already put a contract on a unit were notified last week of the change and will get their deposit money back. I’m sure many buyers were relieved to be able to get out of the contract given the current state of the market.

Has the market hit the bottom yet? That’s the million dollar question everyone wants an answer to. When I say market, I’m referring to the Arlington condo (& co-op) market. Remember, real estate is always a local market. What is happening in Arlington will vary from DC, suburbs outside the beltway, NYC, Detroit and the overall national market.

Back to the question. Are we at the bottom? A few economists think we have hit the bottom or are very close and see some reports of stabilizing. Other economists think it won’t be until later in the year or even into next year.

The correct answer is that you can never tell when you are at the bottom in real time - you can only look back in time and say when the bottom occurred. The talk of recession is keeping many buyers on the fence looking for a sign it is safe to go back in the water, but it is good to keep in mind that you can overpay in rising market and under pay in a declining market. Do your homework and you can make a great buy these days.

Rather than speculate about the future, let’s look at some numbers and trends from previous months.

 

 

 

 

 

 

 

 

 

 

 

Average sale prices are widely quoted, but I also like to look at the median sale price. In Arlington, there is such a wide spread of condo prices that a $2 million sale can skew the average, but not the median. Looking at the graph above the median price has come down the past couple months. Will it continue? A few foreclosures has helped to push this lower.

 

 

 

 

 

 

 

 

 

 

The inventory of condos for sale will typically spike in the Spring when more sellers place their homes for sale. So, even though the chart above shows a rising inventory, that is expected and is not a warning sign itself at this time. If it continues to increase in June & July, then that would be a sign the market is stalling. For calculating the inventory, I use a 3 month rolling average.

 

 

 

 

 

 

 

 

 

 

The number of days on market is a number closely looked at to indicate the health of the market. The average time is now close to 60 days for condos that do sell -  but not all sell. Listings that are withdrawn or expire, don’t factor into the equation. The days on market is rising now. The mortgage crisis and talk of recession has caused a number of buyers to hold off on purchasing.

 

 

 

 

 

 

 

 

 

 

 

Want to know where the bottom is? Watch the graph above and below. When the difference between the original listing price and the final net close price (closing price minus seller concessions) begins to narrow, that’s when you know the bottom was reached.

 

 

 

 

 

 

 

 

 

 

 

This graph shows the same information as the previous one but in a different format to make the differences more apparent. The graph shows on average that condos are selling at roughly at 8% reduction from the original listing price. Remember that is only an average. Quality units well priced from the start will sell close to asking price and overpriced condos in poor condition will start high, sit on the market and occasionally go into foreclosure at a low price. 

Want some more insights? Give me a call or email.

If you have been through Clarendon recently, you may have noticed a building missing just south of Clarendon Blvd and bounded by N Highland St and N Garfield St. The building was demolished to make way for Clarendon Center, a mixed use project of 2 office towers, ground floor retail and rental apartments.

Here is a recent photo of the site:

 

 

 

 

 

 

 

 

 

Here is what it will look like in a couple years:

 

 

 

 

 

 

 

 

 

 

The block just to the north of Clarendon Blvd and directly east of the Clarendon metro station will also be part of the Clarendon Center project. This block is currently occupied by several low rise buildings, including Hard Times Cafe and Viet Garden restaurant. These will be coming down sometime in the future.

Clarendon Center will have 244 rental apartments, 76,000 sq ft of office space and 29,000 sq ft of retail in the south building. The north building will have 94,000 sq ft of office and 13,000 sq ft of retail space.

So how does this effect the condo market in Clarendon? The construction might be a nuisance for residents on the west side of Station Square in the short term, but long term, this project will only add value to the neighborhood.

There have been several new condo buildings in Clarendon the past few years during the condo boom - The Hartford (2003), Clarendon1021 (2005), Station Square (2006) and The Phoenix (2007), but no new condos in the pipeline. Any new residential construction is projected to be rental apartments.

So how is the Arlington Condo market doing? I get asked that question almost every day. If you read the Post or listen to the nightly news, you will hear about the sub-prime mess, the R-word, fed rate cuts, mounting foreclosures and the stock market dropping almost every day. If that is all you hear, you would probably think the real estate market must be dead. Fortunately, the reality isn’t so gloomy.

Yes, prices came down in 2007 and we are still in a buyer’s market. Will we see more price declines in 2008? The truth is no one really knows. I do know the Arlington market is doing much better than counties further out and definitely better than markets in Miami and Las Vegas where the condo craze got silly. Any area that had a lot of new build and investment speculation, is having trouble.

There were a number of condo buildings that went the rental route before being delivered, reducing the number of condos available.

I always like to balance what I hear in the news with actual numbers. So let’s look at some stats below.

The first graph shows the average and median sale prices for condos and co-ops in Arlington. It doesn’t look like there is much change from last year, which is only partially true. Prices have dropped, but the average has been kept steady by the delivery of some new condos, which tend to be higher priced. Look for a future post where I analyze sales in individual buildings. The graph below also doesn’t take into account seller concessions. Look at the last graph on the bottom for more info on this.

 

 

 

 

 

 

 

 

 

 

 

The average days on market (for units that sell) fluctuates with the time of year. The graph below shows a 2.5 year history. At the peak of the market in the summer of 2005, units were selling in a matter of days.

 

 

 

 

 

 

 

 

 

 

The number of sales also tends to fluctuate with the season. December ‘07 was almost identical to December ‘06 in terms of unit sales.

 

 

 

 

 

 

 

 

 

 

Market inventory is a good indicator of the overall market. At the peak of the market, the number of units sold in a month was nearly equal to the number of active listings in a month. Currently, there is about a five month supply on the market, meaning it would take 5 months to sell out the current inventory at the current pace. Compared with other parts of the metro region and other parts of the country, a five month supply is actually low.

 

 

 

 

 

 

 

 

 

 

 

This last graph is the one to watch to know when the market turns from a buyer’s market to a seller’s market. This graph shows the difference (or spread) between the original list price and the net price. The net price is the final sales price minus any seller concessions. A negative spread number means the seller is getting less than what he asked for. Looking at the graph we can see exactly when the market peaked - July ‘05. The very first bar on the chart shows a positive number - seller’s got more than they asked for. The spread has gotten smaller since 2006, but that is partly due to sellers getting more realistic in their pricing.

 

 

 

 

 

 

 

 

 

 

Look for a future post in a few days when I analyze sales in individual buildings.

A few weeks ago I posted a blog entry about Jim Cramer from CNBC who warned against buying real estate now. Well, here is a differing viewpoint from billionaire real estate mogul Donald Trump, who knows a few things about investing in real estate:

 

“This is the time to go in.  This is the time to really bargain, really chisel - you couldn’t have done that a year ago.”

 

 

It is only a short clip from an interview with CNBC’s Erin Burnett (Click on the image to see the video), but very relevant.

Trump’s take on the market is that now is one of the best times to get into the market. With a number of foreclosures, short sales and motivated sellers, there are deals to be made. It’s called a ‘buyer’s market’ for a reason.

I’m not advocating running out there and just start buying properties, because you can easily overpay for some. If you do your homework and get some good advice, you can find some real deals.