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Todd’s Home News
Hello! From Todd
Welcome again to another info-packed issue of Todd’s Home News. The market has kept us on our toes over the past year as many of the underlying factors that drive the Northern Virginia real estate market have undergone significant changes. As you know, we work within the context of the current market conditions each and every day. Over the past 12-18 months we’ve had to continually re-evaluate our thinking, our positions, and our marketing and business plans in our quest to provide the very best guidance possible to our clients. Over the past 12-18 months our market has experienced:
1. Fluctuating interest rates (but trending upward).
2. A tightening of lending standards (due to the SUBPRIME mortgage meltdown)
3. Rising foreclosure and delinquency rates on mortgages (The big “X” factor)
4. Significant contraction, then stabilization, of values (some areas more than others)
5. Rising rental rates (very, very interesting...)
6. Continued strong job growth & very low Unemployment (This factor is KEY)
While there are many other factors to consider, a general understanding of those listed above are essential to understanding the current Northern Virginia real estate market in June of 2007. The first three factors are all related to interest rates, or to overall lending policy. While this is a national trend, it has certainly affected the Northern Virginia market on many different levels. We are currently working with several clients that decided to wait throughout 2006 to purchase a home. Throughout 2006 they (like many other would-be-purchasers) saw market prices/values contracting and a growing inventory of homes from which to choose. The one factor that they did not take into consideration, or could not necessarily foresee, however, was the distinct trend towards a tightening of lending policy across the board that all lenders have now put in place to protect themselves from further losses due to loans that have gone bad. This has made it increasingly challenging for purchasers to obtain financing and has driven interest rates (the cost of borrowing money) upward to the point where certain buyers must recalibrate their home searches to a lower price point. While this may all sound very negative, there is a silver lining to this story - and it comes full circle to the fact that most areas have had significant pricing corrections over the past 12-18 months. While this is a very general statement, it is most accurate the further out one goes from the Beltway. For example, in Eastern Loudoun county (Sterling, Ashburn, Cascades, Lansdowne, Belmont, etc.) we can easily document a pricing contraction of 15% - 20% across the board since the peak of the market in early to mid 2005. In Arlington, however, market values have generally held up very well (the one main exception being new condo construction). Overall, it is imperative to remember that all real estate markets are local and Northern Virginia is no exception. There are even very distinct “micro-markets” within Northern Virginia - (i.e. South Riding is a very different market than Fairfax, which is very different than Reston, which is very different than Alexandria, which is very different than Great Falls, etc., etc., etc…)
While I’ve taken the example of local markets to the extreme, it is very important to keep this in mind when reading a story about the state of the national housing market. We’ve all read stories, or seen/heard stories from the national media outlets about the collapse of the housing market. While there is no doubt that we’ve experienced a pricing correction in Northern Virginia, there are several signs that our correction may have worked it’s way through the market. In general, we feel that the market “bottomed out” in December ‘06 and has since stabilized. If you study the page of market statistics for April 2007 that I’ve included, you’ll notice several key things from the info that support our observations.
First, NEW listings in NOVA for April ‘07 are down by over 20% compared to April ‘06 (5,178 in 2006 vs. 4,111 in 2007 - bottom right of page). This statistic is very, very interesting. Sellers no longer have a nonchalant approach when it comes to the decision of whether or not to list their home for sale. Over the past 12 - 18 months many sellers have come to realize that they may not sell their house at an attractive price point, and that much of the equity that they once had in their home no longer exists. This has caused many sellers to stay put and has essentially shut down the “conveyor belt” of upward homeowner mobility that characterized our region when market values were increasing by 15%+ per year and sellers simply parlayed their accumulated home equity into their next purchase. If this trend continues (less inventory on the market), it could further stabilize prices, or even be a factor causing prices to rise.
Second, notice that the actual number of SALES in both Alexandria and Arlington for detached properties (single family homes) either increased or remained stable for the year to year period. The same cannot be said for Fairfax County and NOVA overall, but this remains consistent with my observations and what I discussed earlier about the strength of the market being more evident the closer one gets in to DC.
Third, in addition to the number of sales, notice that the average sales price for all properties sold in both Alexandria and Arlington was actually flat when comparing the April ‘06 and April ‘07 numbers. A further look into the stats show that the numbers are more positive in Arlington than in Alexandria, but the overall message remains the same: these areas (close in) have held their values better than the areas further out from DC.
Fourth, while I did not include statistics in this issue of the newsletter about the local economy, the local job market continues to add thousands of new jobs every month. This factor alone will have the greatest affect on the real estate market. As Doug Duncan of the Mortgage Bankers Association said in April, “the Washington market started adjusting earlier, its jobs growth and fundamental economics are strong, and the region will likely lead the country out of the housing market slump.” I believe that if job growth flattens in NOVA, however, all bets are off as far as the health of the real estate market in NOVA is concerned.
The one "X" factor that everyone will need to watch very closely is how much of an impact the sub prime meltdown will have on the real estate market. Without getting into too much detail, the interest rates of many of the more aggressive, adjustable loans that were issued from 2004 to 2006 are getting ready to adjust upward. Many borrowers with these aggressive loans purchased homes at the height of the market. Because home values have since depreciated in many areas, and because rates have risen substantially since their purchase, many borrowers will not be able to refinance their loans and will be stuck with much higher payments - leading to default. This is happening right now in every community and across all price points - but mostly on the lower end of the price spectrum. We have seen an dramatic rise in the number of foreclosures and in the number of short sales in our area. When a property is sold as a foreclosure, or is sold via a Short Sale, this creates downward pressure on the market values of the surrounding homes in a given community. It remains to be seen how much of an impact this trend will have on our region. These distressed sales could prove to be a significant counter balance to the positive factors of the NOVA market I’ve discussed in this summary. The distressed sales could, however, prove to have much less of an impact than anticipated. Only time will truly tell. Please stay tuned. Much more on this topic in the coming months.
As always, we try to mix up the content of Todd’s Home News a bit to keep it from becoming too stale.
Please draw your attention to the article promoting Chris Cerino (my older, yet weaker, brother) and his new CD. For those of you that know Chris, his first-ever CD is an absolute MUST have in your collection. Trust me, you will not be disappointed! Absolutely hilarious. Please read on...
Also, please note the announcement of some of our most recent clients. Your business and support is greatly appreciated. Welcome to "The Family"!
For those of you that are statistic oriented, please see the most recent NVAR stats about our local market. These stats are for April ‘07. As always, please feel free to call (or email) me with any questions you may have. Please also see my article “Buyers: Carpe Diem???” which makes a convincing argument for those currently renting to make a purchase.
Last, but not least, I’ve taken the time to summarize (and give credit where credit is due) some very pertinent and timely articles that I’ve recently come across. We strive to ensure that our clients are as informed as possible. Again, your questions and inquiries are ALWAYS welcome!!!
Chris Cerino - 1st Ever CD Release!!! - "Kent County Diaries"
Okay, where do I begin to describe one Chris Cerino?...
First of all, there is definitely only one, and he lives in Chestertown, MD. Chestertown is a small, waterfront community in Kent County on Maryland’s Eastern Shore. Recently, Chris was given a grant by the local Historical Preservation Society to record roughly 15 original songs that he’s written about life in Kent County, and about Chestertown in particular. Since his arrival in 1992, Chris has become somewhat of a local phenomenon in these parts (‘legend’ goes a bit too far). He has sold out Chestertown’s historic PRINCE theater on multiple occasions (by far the biggest venue for miles) entertaining audiences with his witty, insightful, and absolutely hysterical perspectives about rural life in this waterfront community. Among Chris’ hit singles are “Vultures in the Valley”, “Possum in Distress”, and my own personal favorite “Greasy Pig Contest” - which is about the annual pig-catching contest held at the Kent County Fair - but, in a twist of comedic irony, this song is narrated from the perspective of the PIG!!! All of the songs were recorded live at Andy’s Bar right off of Main Street. I’m telling you, this CD will have you laughing out loud and is all good clean fun. If you’ve never been to Chestertown, here’s your introduction. If you’re familiar with small town life on the Eastern Shore you’ll love it even more.
To order the CD, contact Chris directly at ccerino@sultanaprojects.org.
Business Networking Opportunity
Many of you know that I belong to a group of local business owners that meets regularly in the Reston/Herndon area. This group of professionals was formed more than four years ago. Over time, each member has become a very valuable asset and resource to me as I continue to build my business. On numerous occasions I’ve sought out each of them for counsel in their various fields of expertise, and I’ve referred my clients to them when they are in need of their services.
Our business networking group is unique in that we allow only one person to represent a given profession - i.e. I am the only residential real estate agent within the group.
Due to recent scheduling conflicts with certain members, we are currently looking to fill several key positions within our group. Please contact me for the list of positions.
If you, or if someone you know, is a motivated business owner representing one of the professions above, please give me a call.
Similarly, if you, or if someone you know, is a local professional or business owner in an industry not mentioned above, and you feel that you could benefit from associating with 20 other like-minded business owners, please give me a call today to discuss how we might be able to build a long term, professional relationship through the power of our respective, personal networks.
Thank you - Todd.
Welcome New Clients
Here are some of the newest additions to our “Real Estate Family”. We’d like to welcome our new clients and wish you all the best!
~Pete & Jen Eskins of Alexandria~
~Colette Wachtel of Alexandria~
~Bill & Connie Harris of Reston~
~Gary Chapman of Georgia~
~John & Michelle Hur of Sterling~
~Chad Ramey of Sterling~
We love giving recognition to our friends and our wonderful existing clients who are kind enough to refer their friends and relatives to us.
NEWS FLASH!!! - 2007 Conforming Loan Limit (CLL)
2007 Conforming Loan Limit Remains Unchanged From 2006
The Conforming Loan Limit is a figure that represents the loan limit for single family mortgages purchased by Fannie Mae and Freddie Mac. Currently, the CLL is $417,000 for Northern Virginia. This is an important figure because loans that exceed this limit are considered JUMBO loans and are assigned a higher interest rate as they do not fall within the parameters set by Fannie Mae and Freddie Mac and are perceived to have an elevated level of risk. The rates that you see advertised in the paper, on TV, etc. are all rates for loans that fall within the conforming limits. The fact that the CLL remains unchanged is also important because it is further acknowledgement that there has been no upward pricing pressure in this market throughout 2006 and into 2007.
The last time the CLL remained unchanged from one year to the next was a three year stretch from 1993-95 when the CLL limit was $203,150.
Cerino Homes & Associates Business Advocate Program w/ REMAX Premier
We created the Business Advocate Program to accommodate individuals who are interested in obtaining their real estate license (or who already have their license), but who do not want to commit to building a real estate business/practice.
Business Advocates with Cerino Homes & Associates are fully licensed agents in the state of Virginia and are De Facto members of the Cerino Homes & Associates Team.
Business Advocates with Cerino Homes and Associates keep their real estate licenses at REMAX Premier in Dulles Virginia.
Once licensed and registered with REMAX Premier, Business Advocates can refer clients to the Cerino Homes & Associates Team and receive commission income from REMAX Premier.
There is no cost for a Business Advocate to obtain their real estate license. Cerino Homes & Associates reimburses Business Advocates the costs incurred to obtain their license upon the successful closing of the first referral – in addition to providing a referral fee
The referral fee to a Business Advocate from Cerino Homes & Associates is 20% of the gross commission earned by the Cerino Homes & Associates Team following a successful closing from a client referred by the Business Advocate.
There is an 80/20 commission split between the Business Advocate and the Broker/Owner of REMAX Premier on all referral income received.
There is no monthly fee for a Business Advocate to keep his/her license with REMAX Premier. Please see the example of how this works below:
EXAMPLE: A Business Advocate refers a prospective buyer client to Cerino Homes & Associates. That client then purchases a home for $600,000. The buyers agent/Cerino Homes & Associates receives a 3% commission on that closed transaction (3% of $600,000 = $18,000). The referral fee to the Business Advocate from Cerino Homes & Associates is 20% of the gross commission earned (20% of $18,000 = $3,600). The Business Advocate is then paid 80% of this referral fee through REMAX Premier (80% of $3,600 = $2,880).
Who can benefit from this program? (a) Someone who has taken time off work and now wants to re-engage in the business marketplace. (b) An individual that has had an interest in obtaining their real estate license but does not have the time or flexibility to commit to building a stable real estate business. (c) Someone that has a large sphere of influence and contacts. (d) Anyone interested in becoming a realtor that is looking for a mentor in the business. (e) Someone with contacts of people/businesses that regularly relocate workers in to the area, or that transfer workers out of the area. (f) An agent from another part of the country that recently moved to the area. (g) A new agent (already licensed) that is not able to establish a stable business in the current market environment. (h) Individuals interested in generating extra income. ANYONE & EVERYONE…
Do you know someone that has given a referral to a real estate agent? Was that person compensated for their efforts?
The Business Advocate program with Cerino Homes & Associates allows an individual to be compensated in the same manner as an active real estate agent without having to do any of the work involved – other than generating the client.
Our program is designed to allow an individual to capitalize on their sphere of influence and networking efforts - and ensures that those they know receive the very best service available from a team of highly successful real estate professionals.
If, at a later date, a Business Advocate decides to increase his/her level of commitment, that individual can transition into a more active status as a Realtor within the Cerino Homes & Associates Team.
“Our Goal Is To Always Think Of Creative and Strategic Ways To Create Win-Win Relationships For Our Clients And Associates.”
- Todd Cerino
Buyers: “Carpe Diem”???
[follow the chart below]
Example: Subject $500,000 Property
A. Early 2005 (Past)
"Height of Real Estate Market"
$500,000 Subject Property Purchase Price
20% Down Payment = $100K down
buyer obtains a $400,000 Mortgage
with a 5.5% Interest Rate (rate in 2005)
Monthly Payment = $2,271.16*
B. Today (15% Pricing Contraction)
$425,000 Purch Price (same house above)
20% Down Payment = $85K down
buyer obtains a $340,000 Mortgage
with a 6.5% Interest Rate (current rate)
Monthly Payment = $2,149.03*
C. Spring 2007 - outlying suburbs
"If Market Contracted 20%"
$400,000 Purch Price (same house above)
20% Down Payment = $80k down
buyer obtains a $320,000 Mortgage
at a 6.5% Interest Rate (current rate)
Monthly Payment = $2,022.62*
The hypothetical example to the left should illustrate why right now is an excellent time to make a home purchase, and why (in my opinion) those sitting on the fence right now should take action.
In scenario A of our example, our buyer bought a house for $500k at the peak of the market, put 20% down ($100k), and financed his/her purchase with a mortgage having an interest rate of 5.5% - resulting in a monthly payment of $2,271,16.
While interest rates have increased since that time, they are currently hovering right around 6.5%. In scenario B of our example, if we factor in a pricing contraction of 15% (something we can easily document), our same buyer pays $75k less for the same house, saves $15k in his/her down payment out of pocket, and has a monthly payment that is roughly $122 less than before.
In scenario C of our example (assuming that prices in a given neighborhood contract a total of 20%) our buyer pays $100k less for the same house, saves $20k on his/her down payment out of pocket, and has a monthly payment that is $248 less than before.
As you can see, in many areas the market has contracted to the point where buyers must re-examine their decision to stay on the sidelines. Those that decide to rent rather than purchase a home will likely face an increase of roughly 15% from their current monthly lease payment, increasingly restrictive lender guidelines, and potentially higher rates for their future purchase.
* Indicates payment calculated for principal and interest only & amortized over 30 years
What I’m Seeing Out There
The best homes are selling - although at price points significantly less than at the peak of the market. Thus far in 2007 we’ve had several listings this year sell for full price within a week or two of going on the market. We’ve seen listings receive multiple contracts this year - but mostly because the sellers OVER compensated on price and listed too low. Today’s seller has a HUGE advantage over last year’s seller in that they have the benefit of hindsight as far as pricing is concerned.
The houses that were marketed ineffectively last year are getting brutalized this year for being on the market for so long. Sellers that want to get the most for their home must upgrade their kitchen, baths, appliances and systems when necessary, have features that buyers want and expect to see, and compensate on price for the things that are beyond their control (i.e. their lot).
Buyers must understand that today’s seller has the benefit of hindsight as far as pricing is concerned and cannot expect to negotiate for 15% less than the current list price - especially for the most desirable homes. Buyers MUST be in constant communication with their lenders to make sure that the loan and financing they expect to receive is still being offered. Buyers must stay on top of the ever-changing lender guidelines and tighter restrictions that all lenders now face.
Virtually all of today’s contracts have a home inspection contingency, an appraisal contingency, a final financing approval contingency, and even a radon inspection contingency. All of these contingencies must be resolved between the seller(s) and purchaser(s) and both parties must come to a “meeting of the minds” on these items before a home can be considered fully UNDER CONTRACT.
Remember, in today’s market, it’s imperative that you have expert representation to guide you through the entire transaction process. Please call me today to find out how Cerino Homes can help you successfully navigate today’s market.
WE’D LOVE THE OPPORTUNITY TO EARN YOUR BUSINESS!!!
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