HOMES IN NORTHERN VIRGINIA IN A SLOW MARKET,BUYING AND SELLING
TIPS AND ADVICE FOR NORTHERN VIRGINIA HOME BUYERS AND SELLERS IN 2007.
A HISTORY AND A PLAN FOR BUYING AND SELLING HOMES TODAY.
UNDERSTANDING HOW WE GOT TO THE PRESENT REAL ESTATE MARKET
Buyers, sellers and real estate agents don’t have to read the real estate news to know that the market for buying and selling homes in Northern Virginia is the slowest that most of us have seen in the past 17 years.
HISTORY OF HOME PRICES IN NORTHERN VIRGINIA
The history of real estate in Northern Virginia for the past 17 years is closely tied to mortgage interest rates.
Beginning about 1995, the real estate market in Northern Virginia was going along at a comfortable pace with appreciation closely following the cost of living increases year after year. It was a slow but dependable growth pattern. Home owners experienced growth in the value of their homes of approximately 2-3% a year. Life was good.
THE INTERNET VISITED NORTHERN VIRGINIA in the EARLY 1990S AND DECIDED TO STAY
Northern Virginia, always a transient job market, beginning about 1993, benefited from the high-tech boom 
related to the Internet. With the growth of Internet related companies in Northern Virginia from 1993-2000, job growth caused a demand for housing and home owners saw their homes appreciating at about 5-15% a year. Life was good. Until shortly before 9:00 a.m. on September 11, 2001.
RECOVERING FROM SEPTEMBER 11, 2001
The horrific events of September 11, 2001 did not, as many expected, destroy the real estate market in the United States of America. Resilient and forward looking Americans did what we always do in the face of threats to our country, we rolled up our sleeves and went to work. The stock market, after a dramatic drop of 684 points following the attack, began to climb slowly. The Board of Governors of the Federal Reserve, to stimulate the economy, lowered the fed funds rate 13 times from about 6% to a low of 1%.
Housing prices for homes SOLD in Centreville, VA 1997 through 2007
1996 - $240,055
1997 - $250,467
1998 - $251,914
1999 - $279,339
2000 - $326,195
2001 - Jan. through Aug. - $364,146
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2001 - Oct. through Dec. - $367,881
2002 - $420,000
2003 - $459,654
2004 - $539,442
2005 - $674,317
2006 - $680,910
2007 - Jan. through June - $630,243 Example Home in Centreville
THE BIRTH OF THE McMANSION
Eventually, that low rate for central banks filtered down to mortgage interest rates and home buyers saw an opportunity to buy beautiful homes at interest rates they never thought possible. Anxious home buyers could buy a home with a 5 year ARM for as low as 3.75%. Families who were living in town houses and small 20-40 year old homes took the plunge and purchased their dream home. Home builders responded and invested in new home construction as fast as they could get building permits. The future was NOW! “Buy now” because, with prices increasing 1/2% a month, the price of similar home was probably going to be significantly higher six months from now. THAT, was the prevailing thought and that thought, declining interest rates and escalating home prices is what propelled the “buying frenzy”.
Interest rates began to decline in early 2002 making home ownership available to many previously unqualified home buyers. As rates continued to decline throughout the early 21st Century, more and more Maryland and Northern Virginia buyers qualified for larger and higher priced homes. There was a buying “frenzy” in the area. Homes sold shortly after going on the market. As more buyer were qualified for the lower priced home loans, bidding wars began which drove home prices higher and higher. Homes sold for prices higher than appraised value to buyers with cash to pay over appraisal.
Then in 2004, the Federal Reserve, to avoid the threat of inflation, started to gradually raise the fed funds rate
and did so 17 times to the present rate of 5.25%. Interest rates, while historically low compared with the late 1980s era of high interest rates, are still low, but the slow up-tick of interest rates has reduced the buying power of a significant number of home buyers.
HOME PRICES INCREASED FASTER THAN INCOMES
Job growth in Northern Virginia continues to increase, but wages and benefits have not kept pace with the growth of home prices and many prospective home buyers either cannot or will not pay the high prices for homes offered for sale in today’s real estate market in Northern Virginia. This phenomenon is reflected throughout the Washington/Maryland/Northern Virginia real estate market place.
PRICES FOR DETACHED HOMES IN FAIRFAX 2002-2007
01/01/2002-12/31-2002 Average Prices SOLD - $477,981 / 602 Homes SOLD
01/01/2003-12/31/2003 Average Prices SOLD - $525,284 / 660 Homes SOLD
01/01/2004-12/31-2005 Average Prices SOLD - $635,020 / 645 Homes SOLD
01/01/2005-12/31/2005 Average Prices SOLD - $782,608 / 614 Homes SOLD
01/01/2006-12/31-2006 Average Prices SOLD - $778,682 / 375 Homes SOLD
01/01/2007-06/30/2007 Average Prices SOLD - $712,391 / 201 Homes SOLD Jan/June
IT’S TIME FOR A REALITY CHECK
HOME BUYERS AND SELLERS NEED AN ACTION PLAN TO BUY OR SELL IN 2007. As prices continued to increase
from 2002 to 2005, many buyers were no longer qualified to buy. Even with stable interest rates, for every $50,000 increase in home prices, fewer and fewer buyers will qualify for homes that meet their needs. Interest rates are still historically low. Interest rates are not what is showing the market for resale homes, although the 1/2% rise in interest rates in 2007 isn’t helping. The crash of the sub-prime market took about 5-10% of our home buyers out of the market.
WATCH WHAT NEW HOME BUILDERS ARE DOING. New home builders are smart. Builders have already invested in large tracks of land. The development process of raw land is very expensive and often has taken years to reach a point where lots can be permitted for construction. They know the market. They must continue to sell homes to stay in business. New homes have been reduced in price and will continue to be reduced as long as buyers are not buying.
TIP #1 FOR SELLERS
HOME OWNERS MUST PRICE THEIR HOME TO BE COMPETITIVE WITH NEW HOMES. Resale homes in the same community with new homes for sale MUST compete with the new home prices and incentives.
The average cost of 20 year old homes in Fairfax is about $252 per square foot.
The average cost of 10 year old homes in Fairfax is about $263 per square foot.
The average cost of new homes in Fairfax starts at about $264 per square foot.
For resale homes to sell, price is the primary incentive. The three components of a listing are: Price, location and condition. Condition is under the control of the seller. If the condition is not good, the listing should be discounted from comparable sales for condition. Location cannot be changed, but a home in a poor location; busy road, highway nearby, shops close to house, can be discounted for location. The key is price and price.
TIP #2 FOR SELLERS
COMPARE INCENTIVES HOME BUYERS GET FROM NEW HOME BUILDERS vs. RESALE HOMES
The new home builders will offer closing cost help of $10,000 - $20,000 depending on the cost of the home.
The new home builder will include free upgrades valued at about $10,000 to $70,000 depending on price.
The new home comes with a 10-30 year structural warranty.
The new home comes with new appliance warranties of 2 years.-
The new home comes with a 5 year warranty on the heating and air conditioning systems.
The new home may include upgraded appliances, granite counter tops hard wood flooring, and more.- The new home will often offer a selection of lots.
- The new home will be sparkling clean when settled.
- The new home will appreciate in value at a higher rate than resales.
TIP #3 FOR SELLERS
ASK YOUR LISTING AGENT IF YOUR’RE PRICED NEAR THE PRICE OF NEW HOMES. Actually, resale homes are not usually priced higher than new homes except that they are not new. Resale homes are not always discounted for age or condition and they should be. Home owners are emotional about their homes. It’s completely understandable. The owners made a big investment. The seller’s home is beautiful to them and, now that they need or want to sell, it is often difficult for home owners to understand why the home isn’t selling quickly. Sellers have little reason to tour new homes, but if they did, they would see that, even when new homes are priced higher, the beautiful kitchens and baths, hardwoods floors, souring ceilings, luxurious trims, fresh new carpets and walls are the competition. Resale homes with 20 year old kitchens and baths are going to have a hard time competing with the WOW!! factor of the new home. The home owner / seller who holds out for the price of homes a year ago will simply see the home sit with no offers and possibly no buyers even touring the home in this 2007 market.
THERE IS GOOD NEWS FOR HOME BUYERS
Northern Virginia real estate has always been a good investment for home buyers who live in their homes for more than three - five years. The longer the home is held, the better the investment. Northern Virginia is the heart of the Internet world. High tech employees are well paid and will pay premium prices to be located in this critical area. Homes are priced high for the Washington/Maryland/Virginia market place, but value is realized due to low real estate taxes, low inflation, very highly ranked public schools, a vibrant economy, ever improved roads for cross county community, spectacular shopping and a stable real estate market compared with other areas in the country. But, home buyers have to be careful when they buy a home in a market that has recently had the type of price escalation seen in the past 5 years.
TIP #1 FOR HOME BUYERS
Study the recent sales and sales trends for the community in which you wish to live and buy a home. Your 
buyer’s agent can provide you with sales reports for the past 3 month. If prices are generally higher than the home that interests you, that should not stop you from making an offer. Get the facts together and price your offer based on recent sales of similar homes and if prices have been going down, consider reducing the offer a bit more to avoid the risk of paying top dollar in a market that is going down. Buyers making reasonable offers is the only way of protecting yourself from a declining market. Make sure that YOUR AGENT is representing YOUR interests when making offers.
TIP #2 FOR HOME BUYERS
Visit new home sites. Many builders have homes in inventory that offer fantastic value. As stated earlier, builders MUST keep building. They have banks, investors, staff and tradesmen to keep busy. The only way a builder can keep building is to reduce the profit margin. Beginning the end of 2005 when the number of new home sales began to decline, builders have been offering more incentives than every before. Some builders have reduced base prices by as much as 10%. In addition to reducing the base price, they are offering more closing cost help, more flexible financing and structural upgrades, extensions (square feet), finished basements, sun rooms, upgraded appliances, bathroom upgrades, flooring upgrades and more.
EXAMPLE: This home in Loudoun County priced out at $825,000 and sold for $715,000 with an additional $15,000 for closing cost assistance.
TIP #3 FOR HOME BUYERS
Make an offer. So often buyers will look at many homes and believe that they are priced too high and just pass the house up and keep looking. At the same time, home sellers are often reluctant to lower the price of their home for fear that buyers are going to want an even lower price so they keep the price high. Or, the seller may have priced their home based on
what the neighbor’s home sold for. Or, the seller may have taken the highest recommended price from the listing agent.
TIP #4 FOR HOME BUYERS
Make sure the paperwork presents you well. To buy a resale home at the best possible price, you should be pre-approved. This means that a named lender has provided you with a “Loan Commitment” subject to a Contract of Sale and Appraisal for the contract price. THIS is the strongest type of buyer. The reason a pre-approval is strong is because it means that the mortgage company has reviewed and approved the credit report, verified the income to qualify and has documented money to close the sale. If you have not been pre-approved, you must at least have been pre-qualified. That means that the mortgage company has reviewed your credit report, income to qualify and money to close, but has not received documentation for the qualification. Most contracts are accepted with a pre-qualification letter.
Other parts of an offer that will help you negotiate a good price:
1. Earnest money check for at least 1% of the offering price.
2. A closing date that is reasonable and if possible that is acceptable to the seller.
3. A quick date for inspections. Contracts will be more acceptable if inspections are scheduled quickly.
4. Make sure the offer is presented to the listing agent in person. Questions can be answered and the seller or the listing agent will know that you are a serious buyer and taking the offer very seriously. Many agents prefer to fax offers these days, but in a tough market with low offers, every advantage must be considered.
5. Make sure that the contract is complete with all of the disclosures and jurisdictional addenda required.
TIP #5 FOR BUYERS
Make yourself accessible. If you find a home you wish to buy, determine your offering price and have your Buyer’s Agent prepare your contract as soon as possible. Remember. The best house on the block will always sell, if it’s priced right. Be an aggressive home buyer. Be aggressive when looking at homes, making offers and negotiating a contract. You do not know what the seller’s bottom line is. GO FOR IT! !
Courtesy: Homefinders.com
Lenn Harley, Broker, Homefinders.com. 800-711-7988. Contact us for a free tour of homes for sale, new homes, resale homes, foreclosed homes, town homes, detached single family, condos, real estate in stafford county, va.
