David Rathgeber's

Timely Topics

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Dangle your carrot - September 2017
Don't miss your perfect home - A guide to on-line searching - August 2017
One critical factor in home selling - July 2017
Win $1,000,000 - June 2017
A Look Back at 2016 and a Look Ahead - April 2017
Move over WashingtonPost! - June 2016
A Look Back at 2015 and a Look Ahead - February 2016
Does your home need a price reduction? - November 2015
Save money on your home purchase - February 2015
We won't get fooled again! - November 2014
Discrimination in housing: Perspicacity - April 2014
Only question needed to select the best agent - October 2013
Exploding the Local Specialist Myth - June 2013
Where have all the contracts gone? - November 2012
Your personal gain from inflation? - January 2012
Where are we and where are we going? - September 2011
A Look Back at 2010 and a Look Ahead - March 2011
An Interesting Question - February 2011
Market Perturberances and more - August 2010
What about prices? - April 2010
A Look Back at 2009 and a Look Ahead - March 2010
Foreclosure and Short Sale Data - August 2009
What are they talking about? - October 2008
Data vs. Information - February 2008
Looking Back at 2007 - February 2008
Real Estate News in Perspective - November 2007
The effects of 911 - October 2001
Market Alert - March 1999
Market Alert - February 1998
Market Alert - February 1994

Dangle your carrot

If you have found a home that you like but you believe it is overpriced or it is more than you are willing to pay, then this idea might be for you. First, you must not be in a hurry. Next, you will need to have a definite idea of what the home is worth to you and an accurate estimate of the market value of the home. This is a strategy for a home that has been on the market for several weeks at the same price. If this is the case, we can conclude that it is overpriced by at least 5%.

The plan assumes that your assessment of the market value is correct. If the price you are willing to pay is more than 5% under the market value, you should save your time and plan to buy another home. But if the price you are willing to pay is close to or above the market value then you should proceed.

To maximize your chance of success, make an offer at the highest price you are willing to pay. Do not make an offer that is lower, or includes room for negotiation. That will almost always fail. Submit your offer and your rationale. Your offer will likely not be accepted. Simply resubmit your original offer and explanation. Also let the seller know that you do not currently have a second-choice property, and that you are hoping that your offer might become acceptable in the future.

If you are correct about the market price of the home and employ this strategy, you should enjoy success most of the time. The dangling carrot (aka your offer) will gradually convince the seller that his price is too high. When this happens and he is ready to sell, your offer will likely be accepted, even before the price is reduced. A bonus: If another offer arrives in the meantime, you will not get blind-sided.

The plan should consider market seasonality, and care must be taken with...

Of course, if the true market price turns out to be greater than your offer, someone else will buy the home before the seller accepts your offer. Meanwhile, be patient: It takes time to change a mind, unless it's our own!
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Don't miss your PERFECT Home
A guide to on-line searching

Home buyers should click here for full details.
This is just a brief a summary.

Almost all home buyers search on-line. Any site they visit gets their data from our MLS service. Each site will decide what data to show, in what format, and what to call the data fields. Your search results often do not contain what you actually intended. Reasonable assumptions can be way off. Do you want to be sure that promising properties are not excluded? Read on.

When an agent enters a home into the MLS, there are required fields as well as optional fields that can be left blank. There are hundreds of fields with thousands of possible entries, but we will concentrate on the fields that are often searched on-line. We separate the commonly used search fields into 4 categories below.

(The complete version includes specific fields
for each of the 4 categories above.)

A few examples: If you search for a condo with a garage, you can easily miss half the suitable properties. If you search for a specific school, it could be much worse. Even square feet is not reliable. Value estimates are laughable. Don't rely heavily on the photos; there are wide variations in quality.

An effective on-line home search will methodically narrow the thousands of available homes down to the handful that are worth a visit, during which you can evaluate the important details. Happy hunting!
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One critical factor in home selling
July 2017

Here's an important tip for home sellers: After you are on the market, be sure to ask your agent to double-check that your garage shows up in the all-important MLS System Summary format.

Entering a garage into the MLS is so tricky that up to 50% of homes for sale with an existing garage do not show it in this critical format. Consequently, an agent searching for a home with a garage (a must-have item for many) will not even see your listing in their search results.

This can be a major problem even if your garage was "entered" into the MLS and might appear elsewhere in other formats or websites. Since at least 90% of homes are sold through the MLS, and the System Summary is the very first screen in agents' searches, showing your garage there is critical. Only an agent can check this; you cannot!

For a comprehensive discussion of how to check your MLS entry, click here.
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Win $1,000,000
June 2017

"Zillow is offering a $1 million award to the 'person or team who can most improve the Zestimate algorithm,' the real estate website said Wednesday. The announcement of the contest comes one week after Zillow was slapped with a class-action lawsuit over its proprietary home-price tool." MarketWatch May 24, 2017

"It's one of the oldest tricks in an internet company's playbook. Concoct a tool that gives the public new statistics on something — the quality of a restaurant or a toaster, say. Then watch visitors flock to the data and worry about accuracy later." New York Times May 24, 2017

Many companies now offer AVMs (automated valuation models), and none are reliable. Why? Because tax assessments (not to be confused with appraisals which also start with an "A") play an important part in their algorithms. (Thanks again, Al Gore!) But when you do any calculation using basically flawed data, the result is inevitably flawed. Garbage in; garbage out. End of story.

The basic methodology is logically unsound: Reflect on how long it has been since the tax assessor even visited your home. Never? For reference: The market value of a home is defined by the price paid by a buyer to a seller, neither being under duress, etcetera, etcetera. Anything else is an estimate, and some of them are way off!

Zillow reports it is within 10% of actual market value 69% of the time, which means it is more than 10% off almost one-third of the time. Click here for Zillow's own accuracy details.

There is no substitute for a properly prepared market value analysis or an appraisal, which are usually within 2% or 3% of market value. Mortgage lenders do not rely on Zestimates, and neither should you.

Nevertheless, Zillow wants to improve, and you can be a winner. Take a chance and click here to enter. If Zillow provides its algorithm, you might tweak it by dithering the factors. Alternatively, you might perform a regression analysis, or matrix inversion, and examine the correlation coefficients. Huh?

Zillow also says it is more than 5% off half the time, and that's a lot. Given the data available, it is surprising the results are even that accurate. In any event, it's a great publicity stunt. Good luck!
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A Look Back at 2016 and a Look Ahead
April 2017

Our local Market Index strengthened significantly in 2016 to a robust 2.1 months supply of homes from 2015's healthy 2.4. Click here for the Market Index chart back to 1991. Months supply ranged from 1.6 in March to 2.8 in September, which has officially replaced December as the worst month for sellers. The Normal Year chart was revised to reflect this new normal.

Townhomes maintained their clear lead over condos and detached homes. Loudoun County strengthened during the year as Washington, DC waned, leaving Northern Virginia and Montgomery County to fight it out in the middle.

Average home prices for Northern Virginia in 2016 were nearly unchanged from 2015. Days on the market were significantly fewer than in 2015, but the average seller concession remained at about 2% off the asking price when the property was priced to obtain an offer. The number of sales increased about 4% over 2015, but the number of homes on the market dropped by 11%.

For 2017 we expect a local market a bit stronger than 2016, with sellers having a chance for multiple offers early in the year. Handling these situations can be critical for buyers: Don't leave it to the fates; click here.
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Move over WashingtonPost!
June 2016

N.B: The following was written by an unnamed author in an undisclosed location in early May and sent to a few of his Loudoun County friends in real estate. Little did he know that Loudoun's Months Supply (aka Market Index) would very soon beat Washington DC's.

Loudoun County: The sky is not falling!

Dorothy pointed out an online Washington Post article last Sunday that was worthy of comment. I'll just take a few bits out of context but the entire article is here.

To summarize: Their claim is that homes in DC have been increasingly popular in recent years compared to homes in the suburbs. One can't argue with the theme, but they first go astray with anecdotal evidence: "...the Cloars can't sell their house..." They forgot to add: for what they think it should be worth. The market's not out of whack, it's an individual seller: We can sell any home in a week if we have to.

They picked on Lansdowne (with 5% appreciation), Zip Code 20176, and Loudoun County in general. For comparison, they cite Washington's Trinidad neighborhood, in the 20002 Zip code, an extreme example selected for its shock value, where homes have appreciated 91% during the carefully selected time period. Thus, "As property values have exploded elsewhere, Lansdowne has been left behind."

A better comparison: A 38% increase for Loudoun's 20164 (a more comparable area) vs 55% for all of 20002. But 38 vs. 55 does not have the impact of 5 vs. 91. This is called "cherry picking" or "data mining." Worse, the data crunchers need to understand that calculating average home prices for any Zip Code is ridiculous. There are not nearly enough data points to draw a reliable conclusion. When they zero in on a neighborhood, the data points are far fewer and the inaccuracy much greater. For a detailed discussion, click statistical significance.

Also, citing tax assessments exposes gross ignorance: See Appendix B. Heavy reliance on tax assessments is why Zillow (to name only one) is so inaccurate: How inaccurate? Has the tax assessor ever visited your home? I rest my case.

There is no need to compare a stable suburban neighborhood with an inner-city up-and-coming (once down-and-out?) neighborhood unless you are writing a story. So, Loudoun friends, the sky is not falling! Relax, and continue to enjoy good schools, as well as police, fireman, and ambulance personnel who arrive at the right address well within 15 minutes.

This is not intended as a criticism of the writers nor a newspaper, but one example of the sad state of media coverage that is pervasive. Happy reading and feel free to share! If you have questions, comments, or suggestions, click davidr@davidr.net, and add them.
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A Look Back at 2015 and a Look Ahead
February 2016

Our local Market Index maintained a healthy 2.4 months supply of homes, with townhomes in the forefront as usual. Click here for the Market Index chart back to 1991. Months supply ranged from 1.6 in March to 3.2 in September, which has officially replaced December as the worst month for sellers. The "Normal Year" chart has been revised to reflect this "new normal."

While the number of sales increased about 8% over 2014 it is still 20% lower than our peak year, 2005. But the number of homes on the market is also lower. For 2016 we expect a local market similar to 2015 with sellers having an advantage early in the year, and a chance for multiple offers. Handling these situations can be critical for buyers.

2015 average prices in Northern Virginia again made small but sustainable gains and remain slightly above their 2006 maximums. Days on the market were a bit longer than in 2014, but the average seller concession remained about 2% off the asking price when the property was priced to draw an offer.

Good news: The number of foreclosures and short-sales in Northern Virginia are a now just a blip on the curve. Don't expect any effect on local real estate from the November election no matter who wins. Even the local media has down-played this one for the last few cycles.
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Does your home need a price reduction?
November 2015

Everyone wants to sell faster and for more money but those two objectives fight each other. Sellers control the asking price and thereby time on the market; but it is "the market" that controls the price the home will bring.

Sellers enter the market based on an estimate. If the home is priced at or below the true market price, it will sell in a reasonable time. But at least half the homes on the market started above that and need a price reduction.

So the questions are...
1-When should the price be reduced?
and...
2-By how much should the price be reduced?

The answer to the second question is easy. In almost every instance a home's price should be reduced by about 5%. We could spend time detailing why, but the short answer is perspicacity. (Click the link or scroll down to the April 2014 entry below.)

The answer to the first question requires a bit more analysis because it varies with market conditions. The number of agents showing a home each week is very important. But as a rule of thumb, the number of days it took to sell half the homes that have sold indicates when a seller should consider a price reduction.

Would you rather have an offer to negotiate, or watch the other homes sell first? Don't languish on the market. When the market speaks, listen.
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Save money on your home purchase
February 2015

Want to save some money? There are over a half dozen detached homes in the DC area priced under $100,000 on the market right now. None are townhomes or condos. None are foreclosures or short-sales. Call me right away to lock up one of these bargains!

Hhhmmmmm. When we buy a book, we can go to amazon for a low price; a box of Ritz crackers, maybe Wegmans. A new car? The buying service. This is how we do most of our shopping. Almost no one is looking for the highest price. So it's a natural instinct to use this approach when home shopping.

But wait! The book or box of crackers you buy for the lowest price is identical to the one with the highest price. You've got it: Homes are different. I never tell my sellers, but each home is actually unique. So, in general, the more you spend, the more you get.

Ok, multi-million dollar homes for everyone! My contact info is on your fridge calendar. But most of us are limited by the mortgage lenders, who do not want to lead us into foreclosure. "But what if I over-pay?" Worry not, there are 3 independent checks to prevent this. (Just ask.)

So what's a buyer to do? Think mainstream: Within the context of your parameters, look for a home that is acceptable to many buyers. While we do not expect another 2007/2008 debacle, the folks who bought the cheapest house got hit the hardest.

While you might come home to your amazon book and your box of crackers every day, you do not have to live in them. (Even Buster Brown no longer lives in a shoe.) And you will not likely need to sell your book or crackers to someone else some day.

Further, the better home you buy now, the longer you are likely to live there happily ever after. And that means saving on movers, real estate commissions, etc. But it's your choice. This is merely food for thought.
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We won't get fooled again!
November 2014

We are starting to hear the financial gurus again beating the "housing bubble" drum. Indeed, housing price averages in many markets, including our own, are back to pre-crisis levels. Fast-backward to 2006: Various financial news folks had been grousing about the housing bubble for at least 4 years.

In the end (2007 / 2008), the problem was not 100% loans or very low down payment loans which had been readily available since 1944. The problem was not interest only loans, or adjustable rate loans (ARMs), or any other kind of loan that they cited. These types of loans had been around for many decades and are still with us today. Note well that ARMs, which have been readily available in the United States since 1981, are the norm in most of the world, where fixed-rate mortgages are rare.

One distinct problem (worse than an "issue") was promoting loans with "teaser rates," where the interest rate used to approve a borrower was artificially low. These loans were no problem for borrowers who were, literate, numerate, and savvy. But this proved to be a combination of virtues that existed in very few borrowers. No, you never heard that from the media.

The mainstream financial media did not have a clue that the real problem was; ignoring existing guidelines, throwing caution to the wind, and making loans to folks who clearly could never repay them. Yes, the Federal Government was pushing to increase sub-prime lending, but they were not in charge of the money. It was a case of the money lenders not doing their job. In a general sense, this was a repeat of the savings and loan crisis of the early 1990s.

If you ever bought a home, you likely signed a 4506-T form which gave your new lender the ability to check (with the IRS) whether the income stated on your loan application was confirmed by your Tax returns. So, while any mortgage fraud (on the part of borrowers and loan initiators) could have been easily spotted, it seems the folks lending the money were not into due diligence.

And all might have been fine if the Fed had not been listening to the news media. Possibly assuming responsibility to head off the alleged bubble, the Fed began raising rates in June 2004. By June 2006 short term rates had increased from 2.5% to 6.75%: In retrospect, way too fast. (Alan never called for my advice, despite the fact that we shared the same Board Room in New York City in the 1970s albeit on different days.)

The effect on 1-year ARMs was delayed a bit, but home owners with these loans saw their interest rates increasing by about 2%. For some, this increase doubled their monthly payment. The foreclosure stage was set, and by the end of 2008, local average prices had dropped more than 36%. The greatest percentage losses were felt in lower priced locations, by the intended "beneficiaries" of the Federal Government's push for lenders to make sub-prime loans?

While the resulting financial debacle on Wall Street was certainly related (exacerbated by derivatives, credit default swaps, etcetera) it had its own greedy undertone, and might have occurred even without "help" from the excessive number of home foreclosures.

The assumption that the crisis resulted from normal market (boom and bust) forces, is faulty, misleading, and dangerous. Maybe the financial media folks should just try to tell us what will happen to the stock market tomorrow. Good luck!
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Discrimination in housing: Perspicacity
April 2014

Perspicacity is the ability to discern a difference. For example, if you see a home whose real value is $450,000 and a second one whose value is $550,000 you will know immediately which is which. However, if you see a home whose real value is $499,000 and a second one whose value is $501,000 you have only a 50/50 chance of guessing which is which. Somewhere in between a $2,000 difference and a $100,000 difference, there is a level at which most folks can tell the difference. Over many years, I have found that the minimum level where most folks can discern a difference is 5%. This is one (quantum) level of perspicacity.

So what?

For home sellers: When setting their asking price, sellers should consider a figure 3 to 5% over the estimated market value. This added amount is sometimes called "fat for negotiation." Sellers who add more, often find that they have no offers to negotiate. Why is this? Because buyers who can afford a home worth 5% more, are looking for a better home. They do not want to give up one level of perspicacity, even if they could buy the home at a 20% discount. They simply do not want to live there.

When considering a price reduction, amounts smaller than 5% are just not significant to the market. Sellers must reduce their price so that they are competing with lesser homes. You got it: Homes at least one level of perspicacity lower!

For home buyers: If a home has been on the market for too long at its current price, it is overpriced by at least 5%. This means that there might be some time to negotiate before a second prospective buyer appears. Also, if buyers find they are not seeing homes that are acceptable, they will need to increase their maximum search price by at least 5% in order to find happiness.
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The only question needed to select the best agent
October 2013

Note: You don't need this; you have me. This is written for your less fortunate friends who might be selling their home. They have read their newspapers and are interviewing agents. Give them this, and reinforce your friendship. They will thank you.

A little known advantage will be gained by pricing a home exactly on a round number. You are not selling gasoline, groceries, or used cars. Remember that the home selling market is uniquely driven by computer searches. For a complete explanation in Chapter 5 of my on-line book for home sellers click the round number theory.

There is NO magic in selling a home; it's about attention to details. Your friends should disqualify any agent who does not voluntarily suggest that their home should be priced on a round number. This is not rocket science, but agents who have failed to recognize this one detail, could easily fail to recognize other critical details.
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Exploding the Local Specialist Myth
June 2013

Your home's most valuable exposure is through the MLS. It is 50 times more important than whatever is in second place. Well over 90% of all homes are sold through the MLS. No, your listing agent will not actually find your buyer directly. Your listing agent is your connection to the buyer. Your buyer will come from the MLS through another agent, not from the direct sales efforts of your listing agent. (See APPENDIX C.)

Your listing agent will rarely show your home in person and therefore will rarely get to impress a potential buyer with his or her local expertise, assuming it exists at all. The first time your listing agent meets your buyer likely will be at the settlement table! Your listing agent's job is marketing, not selling.

There is absolutely no unique information that a local specialist possesses. What does your local specialist know that you don't know? Nothing! And remember, you have only 400 characters in the MLS to tell your story. Don't waste precious words selling your subdivision or area.

More agent selection criteria that do not matter at all:
- Office location. In real estate, sales from office call-ins and walk-ins are non-existent.
- The real estate firm. You will never meet Mr. Long who is long gone nor Mr. Foster who has retired.
- The dynamite marketing plan: Total baloney. Your agent's direct sales efforts are insignificant in comparison to the efforts of thousands of other agents using the MLS to find your home for their buyer.
- A team effort. This can't be good if the team leader, the one with the experience, is unavailable to you. Should you settle for #2, #3, or an un-licensed clerk?

It is often difficult for home sellers to separate what is really important from what only sounds really important. But all agents are not created equal. For 9 important considerations click Agent Selection Criteria or for an in-depth discussion of agent selection see CHAPTER 3. Selecting the right agent will reap rewards in personal satisfaction, time, and money.
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Where have all the contracts gone?
November 2012

A one year study of 1,287 contracts entered in November 2011 shows that a year later 86% have closed. 12 contracts (less than 1%) still await closing or have been totally forgotten by their listing agents; all of these are short-sales. 164 contracts (13%) have died along the way; most of these were short-sale contracts. Most standard-sale and foreclosure contracts did close, and 99% closed within 3 months with only 3% of the original total dying before closing. Short-sales, however, experienced a 50% mortality rate, and only half of the successful ones (25% of the total) were closed within 4 months.

Four important observations...
1-Assuming that all standard sale and foreclosure (excluding short-sale) contracts will close is not correct, but the inaccuracy introduced (due to 3% never closing) is insignificant.
2-An estimated 75% of buyers entering short-sale contracts are likely severely disappointed. Short-sale homes often have multiple sequential contracts as buyers become impatient and rescind.
3-Short-sales have resulted in a significant disturbing influence on the analysis of real estate data for some time. Short-sales are counted as "active," but since they are not even considered by many buyers, they inflate the numerator of the Months Supply fraction. On the other hand, short-sales under contract (sometimes called "pending") inflate the denominator of the fraction because about 50% never close and another 25% are on the books for an inordinate amount of time.
4-The significant reduction in the number of short-sales and recent improvements in lender handling of these cases could minimize the disturbing influence of short-sales on future data.
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Your personal gain from inflation?
January 2012

The segment below ended with the question: What should we be doing now to prepare? Conventional wisdom holds that in times of deflation it is best to hold cash while in times of inflation it is best to hold things. Things? Yes, hard assets like gold and real estate. Even if conditions worsen, a double-dip recession that some still fear, significant inflation seems to be a sure thing sooner or later. What do you think?

Let's investigate real estate. Local average home prices are around $450,000, well above their December 2008 low of $359,660 but still well below their April 2006 high of $568,074, and continued gains are expected. Let's say you buy an average home for $450,000. At an assumed 5% annual appreciation rate (our 20 year average rate is over 6% and the average has been 8% for the last 3 years) the home will be worth $574,000 in only 5 years. This represents a tax-advantaged gain of $124,000! Further, there are financing options that could provide a great advantage when you sell the home. So what are we waiting for?
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Where are we and where are we going?
September 2011

The US economy has been in the dumps for years, and massive government spending programs, supported by unprecedented borrowing, have had too little effect. Much of the borrowing has been from China, whose continued appetite for our bonds is not guaranteed. Those who lend expect interest payments until maturity, and find the recent discussions of default rather worrisome. Our creditors also expect eventual repayment. At some point, China and other investors will seek better returns elsewhere or worry about default, and curtail their purchases of our Treasury Bonds. Eventually, we will either go bankrupt (translation: default and be unable to borrow from anyone) or our interest rates will increase to attract lenders.

Meanwhile, trillions of dollars worth of Treasury Bonds have been bought by the Federal Reserve (AKA the Fed). Why is the Fed doing this? To keep interest rates (short and long term) artificially low and therefore increase the money supply in an attempt to spur economic growth. But the Fed buying Treasury Bonds seems like smoke and mirrors. Is this not why Bernie Madoff is in jail and why Charles Ponzi got deported?

What will happen? The scenario above has historically led to inflation. The Fed's action, China's continued purchases, and our stalled economy are likely to postpone the inevitable for some time. But significant inflation seems a sure thing at some point. In the meantime, and likely for months to come, we are enjoying record low mortgage rates. Where do you think we'll be in a year or two with interest rates, inflation, or depression, and what should we (individually) be doing now to prepare? Share your thoughts!
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A Look Back at 2010 and a Look Ahead
March 2011

2010 was the third year of recovery for our local real estate market as the Market Index maintained a healthy 2.4 months supply of homes. The recovery was led by Northern Virginia with townhomes in the forefront. To see how 2010 ranked, click here for the Market Index from 1991 to date. 2010 was the second year of home price recovery as average prices again made sustainable gains.

For 2011 we see a strong local market with sellers having the advantage early in the year. The upward trend in prices is expected to continue indefinitely. Our market is expected to remain one of the strongest in the country.
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An Interesting Question
February 2011

David, I'm sure you know the market better than reporters but I just read yesterday in the Wall Street Journal that home prices in the Washington DC area declined 5.8% in the fourth quarter. Why would that be if the market is healthy and balanced? Are they focusing on one bad area? Steve

For the WSJ Article click here.

An Interesting Answer?
My fourth quarter results show average home prices in 2010 8.0% ahead of 2009 for Northern Virginia. So the first difference is that the WSJ's numbers are for some undefined D.C. "metro area." We know that Northern Virginia is the healthiest segment of our market but I doubt there is a 13.8% difference. Nevertheless, we both are reporting home prices for the same time period.

WSJ cites their "quarterly survey" as their data source. This could mean anything and it's likely not worth the trouble to find out. My method is simple and direct: I extract resale sold home data directly from our MLS and calculate an average.

Finally, most news folks have no concept of statistical significance. 5,000 to 10,000 transactions are needed to have a reasonable confidence level for an average-price calculation; any fewer produces results that are meaningless. This could be the biggest reason the WSJ got it wrong: Their data sample size is not large enough. The fact that they found some numbers and calculated an average was good enough for them.

As you know, I could write a book! When we see an article like this, we wonder how any of us can ever make rational judgments, especially about weightier world events. But don't get me started!

Thanks for keeping in touch, Steve, and "HI" to all!

For some additional perspective on the news, scroll down on this page to "What are they talking about? - October 2008"
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Market Perturberances and more
August 2010

There's still more bad news coming for housing as the media catches up with what we reported three and a half months ago. The Federal Tax Credit Program's major effect seems to have been packing sales into March and April, most of which would have happened in May June and July. Consequently, recent months' sales have been somewhat lower than expected and it is strikingly clear that the Program is not having any lasting effect. After the bad news passes, the news will be of increasing sales, albeit merely from current artificially depressed levels. So remember where you heard it first.

This year will turn out to be slightly slower year than last. But at year's end we will look back at a generally healthy, normal year overall, which was skewed up (a statistical term) by a well-meaning Federal Program. Our local supply and demand remain in reasonable balance with the months supply of homes on the market in the range of 3.0 to 4.0. Year-to-date sales are running about 7% lower than 2009.

Meanwhile, the average home price has seen a significant increase this year which is expected to hold, but further increases are not expected until 2011. Great news: The long-heralded rise in interest rates has not yet materialized, due to artificial influences as well as the weak economy. The 10-year Treasury note (widely viewed as an indicator of mortgage rates) has hit record lows recently as have mortgage rates. The current situation is expected to last at least until the spring of 2011. But, higher rates are surely coming at some point. Keep your eye on macro economic data, especially the employment numbers.

And the bubble? When bubbles burst, there is nothing left. This analogy does certainly not describe even the worst housing market in the country. No one thought that the elevated level of sales could continue forever. What was striking and unforeseen: The number of foreclosures and their effect on our home values. In the end, the problem was not 100% loans, interest only loans, adjustable rate loans, or any other kind of loan. Mainstream media did not have a clue! The problem was: Ignoring existing guidelines, throwing caution to the wind, and making loans to folks who clearly could never repay them. It was a case of the money lenders not doing their job. It was a repeat of the "savings and loan" crisis of the early 1990's. Do you remember?
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What about prices?
April 2010

2009 was a year of recovery for our local real estate market as both the months supply of homes and average prices made sustainable gains. To put things into perspective one must revisit the unusually slow market of the early 1990's during which home appreciation was nil for 6 or 7 years. When the market heated up dramatically in the early 2000's the average price peaked at $568,074 in April 2006 and then started to decline. For a look at average home prices from 1991 to date, click here.

Although our recovery started in November 2007, the average home price was not on exactly the same schedule. The decline in prices accelerated through 2008 even as the health of the market (as best measured by Months Supply of Homes) continued to improve. How can this happen? A reasonable explanation is that the price declines were the result of the large number of foreclosures and short-sales. Average prices hit bottom in December 2008 and confirmed the Months Supply turnaround of a year earlier.
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A Look Back at 2009 and a Look Ahead
March 2010

2009 has been another year of recovery for our local real estate market. The recovery was led by Northern Virginia townhomes. To see how 2009 ranked, click here for the Market Index from 1991 to date.

As you know, our recovery started over 2 years ago. For a month-by-month graph of the Market Index for the last 3 years that clearly shows when the market turned, click here.

2010 has started off remarkably well in spite of our record bad weather. We see a strong market for the first half year, spurred on by the Federal Tax Credit and historically low interest rates. The second half of the year should be a bit slower.
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Foreclosure and Short Sale Data
August 2009

Tracking foreclosures and short sales has recently become possible as a result of some timely changes in our MLS data collection process. You might recall that we identified these distressed homes as an important part of our market, but could only approximate the data by tracking vacant homes. Vacant homes data included foreclosures, some short sales, and other homes where the sellers had moved.

Our reporting can now be much more precise. But what does all this mean? Foreclosures represent homes that can readily be purchased. The process is indeed more cumbersome than dealing with individual sellers, but it can work. The net result of each sale is (obviously) to decrease inventory, and as a rule, to affect average prices negatively. It is believed that a large proportion of foreclosure sales during the last half of 2008 is what produced the unprecedented 19% drop in average home prices in our area. As long as foreclosures remain below 10% of the homes available for sale, negative effects on average prices will be slight.

Short sales represent homes that are so difficult to bring to closing that the great majority of buyers are unwilling or unable to deal with them. In other words, in the eyes of most buyers, short sale properties are not an option. When the proportion of short sale homes exceeds 5% the market is measurably stronger (better for sellers) than the Market Index (months supply of homes) indicates, because these not-really-on-the-market homes are included in the current inventory data.

Currently the proportion of foreclosures is relatively low and consequently precipitous drops in average prices are very unlikely. Further, the proportion of short sales is relatively high, making the market easier for sellers and harder for buyers than the numerical data suggest. Both the number of foreclosures and the number of short sales on the market are expected to decrease in the future and eventually minimize the associated aberrations.
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What are they talking about?
October 2008

Putting real estate news into perspective...

Why are the "pundits" telling us all this baloney? What do they think we should do? Sell our homes and live with mommy and daddy? With the kids? In a tent? Stop buying homes? I'd be happy if the Wall Street folks could give me an accurate prediction of the stock market, where they should be the experts! I'll be a bit worried when Realtors on TV start telling me what stocks to buy!

Here are some important questions you should ask yourself about the news:

When you examine the underlying data, you might ask:

Of course, radio and TV news spots and newspapers have time and space constraints that make answering all the above questions impossible. So, it's up to us to decipher the truth. Unfortunately, this is well beyond the scope of most listeners and readers, the savvy folks like us being a small minority. Isn't listening to the news just a recreational activity anyway?

Remember that "what everybody knows" is not always right, even when it sounds right. Get your real estate advice from real estate folks, not ignorant Wall Street lemmings. Monitor the local economic conditions including employment, and most importantly, housing supply and demand (yes, the Market Index). And when you are making those really important decisions about your personal housing, good luck!
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Data vs. Information
February 2008

Fourth quarter 2007 (preliminary) data now available from the National Association of Realtors (NAR) shows median home prices in our area (Washington DC MSA) flat for 2007, but down 5.1% in the 4th quarter compared to 4th quarter 2006.

The 4th quarter data show home prices in Lansing, MI and Sacramento, CA down about 19% and prices in Cumberland, MD and Yakima, WA rising by about 19% with the rest of the country in between these extremes. Of course there are parts of our area where home prices are rising and parts where they are not, so even the data for our MSA should be viewed very generally.

While our current market is not as soft as in the mid-1990's, home values seem to have been less resilient. Although the current state of affairs is now vastly different from the years 2000 to 2005, it still does not qualify us for a "bubble-burst" award.

Important lessons to be gleaned from the data?
1-There is no national real estate market (in case we have never mentioned that before).
2-Interest rates are not the main key to home price appreciation: Rates are nearly uniform nationally while price changes vary appreciably.

Actionable information?
1-Keep your job, if only for the income it generates.
2-Keep paying your mortgage on time.
3-Do not sell your home in panic: It's way to cold to be pitching a tent in the county park.

More Information: This paragraph originally contained a link to an article by Dr. L. Yun of NAR about home price data and was an expose' of the S&P Case-Shiller Index. Unfortunately, this sensational "shock index" makes bigger news than the NAR reports which are based on sound research principles. But Dr. Yun's article of February 2011 no longer seems to be available. Hmmmmmmmmm.
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Looking Back at 2007
February 2008

2007 consisted of 2 very different half-years. There was the first half: While it felt a bit slow after so many boom years, it actually posted sales slightly higher than normal as was also the case in 2006. Then there was the second half of 2007 with the number of sales down about 20% compared to normal. We know from our experience in 1989 and 1990, that such a drop is significant. Lower sales partly due to tighter mortgage guidelines, along with an unusually high number of foreclosures, led to inflated inventories of unsold homes and the concomitant rise in the Market Index (months supply of homes).

It bears repeating over and over that there is no national real estate market. Further, there is no national labor market. So when you hear that unemployment is 4.9% nationally and that the foreclosure rate in California is 3 million percent, listen for the local data! 2008 is expected to be a normal year in our market and by year end, inventory levels (homes on the market) should be much lower. Assuming our local economy maintains its buoyancy, and the media does not scare the wits out of us, 2009 should be an even better year for local real estate.
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Real Estate News in Perspective
November 2007

The hectic pace of our local real estate market over the past several years has slowed. Even I have noticed! But no one thought it would last forever. The "boom" was mainly the result of demand for housing driven by a healthy economy.

Our current slowness is the result of two factors which are related to indiscretions in home mortgage lending. First, there is a larger than normal foreclosure rate as some folks are unable to make the increased payments resulting from their adjustable rate mortgages. The second factor was a temporary shortage of mortgage money resulting from lenders' reactions to the sub-prime mortgage mess. Both of these problems attained critical mass mainly as a result of the Federal Reserve Board's (FOMC) interest rate increases. The Board's recent decreases in short-term interest rates will certainly help those folks with adjustable rate mortgages, and are calming money markets so that mortgage loans are more available. A recent release from the Mortgage Bankers Association points out that the national news on foreclosures is being driven by data from a few large states, none closer to us than Ohio or Florida.

Important: You never hear that there is no national real estate market and the constant implication that such a market exists is unfortunate. There are hundreds of separate markets and a meaningful connection of national averages to any specific location is impossible! History proves that what happens in Las Vegas or Houston has no effect on us. The obvious reality is ignored because it does not support the story. National news is not directly relevant, but alarmist reporting can indeed have a chilling effect locally. News is 80% entertainment, 20% fact on a good day.

Undaunted by the facts, one Standard & Poors (S&P) "expert" recently predicted a 50% drop in home values. You would think that after years of pointless bubble talk, the Wall Street folks would just try to tell us what will happen to the stock market next week. The most recent (Nov 2007) home values report from the National Association of Realtors (NAR) shows areas of the US where home prices are rising as much as 20% and others where prices are falling as much as 20%. Our area (Washington DC SMSA) is in the middle with slight gains (less than 1%). The NAR has been publishing their study for a long time and have inside information through MLS systems around the country. My discussions with NAR indicate that they are aware of "statistical significance" an important concept unknown to mainstream media. S&P can not claim expertise in residential real estate.

There will be more bad news in coming months, as predicted in my October Market Report, as weak September data become apparent to the general public through the media. Therefore, home sellers who need to sell soon need to take significant corrective action so that they do not get caught in an ugly year-end real estate market resulting from media amplification of stale unfavorable data. On the other hand, homebuyers should take advantage of the current situation which might last only a few months. Mortgage rates are still low and should be lower in the next month or two. The current inventory surge will not last forever. Meanwhile, you, I, and our neighbors have jobs, need shelter, and are not selling our homes in panic.
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The effects of 911
October 2001

The events of September 11 have had a profound effect on the local real estate market. Data analyzed is for 17 days before and 17 days after the event. September 11, and the Labor Day holiday, have been excluded from the data as aberrations.

A review indicates that sales are down 22% at a time of year when they normally would decline by about 4%. For perspective, the sales decrease that led to the 1990 cooling of the local market was in the range of 25%. The number of homes for sale, has increased 23% at a time when it normally would have decreased by 10% which is certainly due in part to the sales decrease.

Although it is easy to calculate before and after statistics, 17 days does not establish a trend. There is insufficient data to determine whether the effects are worsening, or whether the shock-effects have already started to fade. Even after September 11, the Market Index is still in sellers' market territory at 1.7 months supply. While the chilling effects on our market were to be expected, the important question is where the trend will stabilize, which should become clear in a month or so.
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Market Alert
March 1999

The buying momentum from 1998 continues. The big news is that number of resale homes on the market is now as low as it was in the late 1980's. Real estate appreciation is returning to our local market, but not at the 20% to 30% rate from the late 1980's.

February sales were 14% ahead of last year, thanks to interest rates and the weather. But a continuing decrease in the number of homes for sale (at a time when the supply is customarily increasing) pushed the market index deeply into sellers' market territory: 2.3 months supply. Detached homes in Virginia are leading the way with only a 1.6 month supply. Average time on the market is plummeting. Over half the homes sell in less than a month. This market is BIG news. This is a HOT market. This is a first for the 1990's, and March and April will be hotter!
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Market Alert
February 1998

With the cooperation of the weather and interest rates, the momentum continues. February sales were almost 50% higher than last February. But inventory (homes for sale) was about 15% lower than last February. This has sent the market index to an all time low (better for sellers) for the 1990's. The positive trend is still accelerating.

Buyers should act as soon as possible and not get bogged down in protracted negotiations. If the current trend continues undisturbed, which seems likely for the near future, buyers will see a lot of competition for the home of their choice as lucky sellers enjoy multiple offers. This is where you get the news before it's news.
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Market Alert
February 1994

In 1994 you will see the long awaited economic recovery take a firm hold. While economic improvements will be slow, they will be steady. The resulting improvement in consumer confidence will bring strength to the housing market. Economic worries which had a controlling and significant negative influence on our local real estate market in the first quarter of 1993 are not expected to re-appear. Selling your home might not be "a piece of cake," but it will be possible.

Keep an eye on interest rate changes which can have an important effect on the market. A trend toward higher rates could dampen market activity as happened last in 1992. Don't expect any significant appreciation in home prices until at least 1995: The resale home inventory is still too large, although it is being trimmed steadily by about 10% each year.

The foundation for future real estate appreciation is in place, assuming that mortgage interest rates stay below 9% as expected. As interest rates have moved down sharply in recent months, personal income has remained much more constant. This means improved affordability for real estate. So the upward pressure on home values remains, held in check only by economic worries and the large resale home inventory. Both of these factors are moving in a direction that eventually will benefit real estate values. Look for continuing support from first-time buyers to help strengthen the market. In time, home values will experience measurable appreciation again, but you might have to wait a long time to see a repeat of the late 1980's.         Ed. Note (2002): LOL
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