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 KEEPING THINGS REAL

People ask me all the time “How’s the Market?” Typically, the person asking wants to know if prices are rising or falling and whether conditions favor buyers or sellers. Sometimes, they are considering acquiring or disposing of real property. My answer is always the same; “It depends on where the property is located.”

The Washington, DC Metropolitan Statistical Area (MSA) has been an appreciating market since 2009. Las Vegas did not see their values stabilize until March of 2012. There, at bottom, the average home had lost about two thirds of its peak value. The cycle in Las Vegas lasted six years; ours was really less than three. Real Estate is local.

REMOVE EMOTION FROM THE EQUATION KEEPING THINGS REAL

Buying or selling real estate should be a strategy, not an event. Sellers should expect to receive fair market value for their property and buyers should expect to pay the same. The “deals” on

distressed property have been gone for some time. Win/Win is once again a valid objective.

How a property performs for a buyer depends less on purchase price than it does on interest rate. Right now, prospective purchasers might be better served by setting a higher priority on locking their

loan than on negotiating a few thousand dollars on price. Interest rates have increased almost a point in the last sixty days.

On the average loan in our area, the corresponding payment increase is thousands of dollars a year. Paying “fair market value” is fair. Focus on those things within your control. The real variable is the amount you pay your lender each month for the money borrowed to pay the seller.

SLOW AND STEADY WINS THIS RACE

Without question, the pace of appreciation before the housing bubble burst was irrational. It relied on overly lax lending practices of other people’s money. It certainly validated the theory that what goes up must come down.

We’ve now enjoyed sixteen quarters of GDP growth beginning in 2009. In response to the abrupt nature of the preceding cycle, recovery velocity developed at a measured pace.

Sustained GDP growth is now beginning to bear fruit in other key economic indicators. While painfully slow when developing, we are now building on a solid foundation.

IT’S ALL ABOUT EMPLOYMENT

We have recommended adding real estate to portfolios since 2010 when the trend reversed toward appreciating values. For many, there was still an echo of the bubble bursting and not enough supporting data to compensate for incurring the risk of loss. Even within our MSA, the trends were conflicting.

Job growth correlates directly to increased demand for housing. Our MSA is forecasted to add over a million jobs in the next twenty years. The steady pace of migration to our region certainly lends credence to an expectation of continued appreciation. There is plenty of supporting data today.

SUSTAINABILITY

The abrupt decline between 2007 and 2010 was interrupted mainly through public policy intervention. Interest rates were lowered, tax policy was suspended, banks were backstopped.  Short sales replaced foreclosures and loans were modified. Values stopped declining and began appreciating. Retraction of these incentives is underway at a pace which is healthy for the industry. Left in place, they provide artificial return or safe harbor. Every public policy expiration moderates buyer or seller activity and returns control to the private sector. There, the variables are simply supply and demand.

SECURING YOUR FUTURE

While rates will continue to fluctuate modestly, the overall bias is towards higher. Once under contract, a purchaser can secure a commitment for a specific rate for a period of time through settlement date. Today’s buyer will likely borrow at considerably lower cost than those purchasing a year from now.

To put things in perspective…any rate at or below six percent is an historically low interest rate. In our generation, the only instance when rates have fallen below six percent is to reverse a housing crisis of epic proportion.

While today, six percent may feel like usury, it is a very healthy rate where the average home remains affordable for a family earning the average income for our area.

TIMING

The pace of existing home sales clearly demonstrates how sustainable current trends really are. Transfer activity is running at only sixty percent of peak velocity and remains below the year 2000 level. Considering population growth, continued improvement is likely. Typically, spring and summer months represent about two thirds of transfer activity in any given year. The first half of 2013 has been very active and is showing no sign of the normal seasonal respite. Potential purchasers seem to recognize the departure of artificially low rates as a unique opportunity.

Fall and winter markets historically favor buyers. This year may be different. We’ll see.

SELECTION 

There are plenty of  In the meantime, you get to live there. That’s fair. Please welcome back “The American Dream!”Just as the thought of six percent interest rates now seems catastrophic, only two months of inventory now feels like a shortage. Factually, six percent is a terrific and healthy rate and two months of inventory is normal. Both are what we’ve been hoping for but we forgot what normal and healthy was like.homes to pick from at fair market value. If you buy a home today at fair market value, odds are you’ll be able to sell it for more later if you want to or need to.

SUMMARY

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 there is 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 your home is 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. Results demonstrate that now more than ever before. Don’t settle for less

Sincerely,

Todd Hetherington