For a brief time last week, there was some buzz on Capital Hill about Fannie Mae (and maybe Freddie Mac) essentially forgiving the negative equity in the real estate mortgage market. The idea has apparently perished for now, but they were basically saying something to the effect of if you owe $500,000 on a $400,000 home (that obviously was worth more a few years ago when you bought it), then you now owe $400,000.

I think it is an interesting concept that warrants discussion.

I am not smart enough to analyze the macroeconomic effects on the entire economy and whether bailing out more entities, institutions or debt-laden consumers with tax payer money is a good or bad idea. I will leave that to the folks who do these types of studies for a living. What I am saying, is in the micro, the idea has merit and this is why.

Right now, I would make the argument that there is the largest percentage of people in the US who are ‘incorrectly housed’ than ever before. I am pretty sure that ‘incorrectly housed’ is not an official statistic tracked by some agency (can you imagine the Incorrectly Housed Americans Department or I.H.A.D.) but if it was, it would track those people who are in houses that are either too small, too large, in the wrong location or designed in a way that no longer fits a lifestyle. This demographic of IHAD’s is larger than ever before.

While we have been living through the effects of an economic meltdown during which almost all economic activity ceased, other facets of life didn’t stop changing. Aging has not stopped…families expanding has not….children growing and leaving has not….children moving BACK home has not….moving to another city for a job has not….in other words, life has not stopped.

The inputs that define whether or not a home is efficient for your stage of life do not change because the value of the home has changed but the ability to do anything about it has. Living inefficiently has its own costs on the market that no one speaks about. Heating and cooling extra space and longer commutes are obvious negatives but what about the stresses caused on young couples living in condominiums or townhomes who now have children and a need for green spaces? It is a real issue and I can name countless examples.

The common thread in all cases is that the market is frozen in place and people are stuck. No amount of stimulus can fix it until you fix debt/equity ratio. As a seller, EVEN if you are able to break even on the sale of your home, the mortgage products that exist now to buy the next one are much more restrictive. Selling your house is a battle, but finding the down payment to go to the next home is even more challenging, and consequently, people stay in place.

Unlocking the ability to allow all of us match our houses to our situation will balance the market better than 3.75% interest rates. Interest rates, while low, do not erase debt or create down payments. Until those two factors are back in balance, we will not see balance in our market.

What do you think?

For more information, see Richmond VA Condos.

Government: “We Forgive You?” is a post from: Richmond VA Condos

As a follow up on the recent Loft Tour and as a part of a larger article on the attractive housing opportunities available in downtown Richmond, VA, the Richmond Grid invited me to highlight some of our listings in the Jackson Ward area.

The article gave me a chance to highlight The Reserve, The Marshall Street Bakery, 212 Condos, and the Emrick Flats.

The entire article is here.

What do you think?

For more information, see Richmond VA Condos.

Richmond Grid Article Focuses on Downtown Richmond Condo Opportunities is a post from: Richmond VA Condos

Industry magazine Builder includes a study this month by a research firm called Market Intelligence that suggests that the Richmond area is likely to be one of the early beneficiaries of an improving economy.

Housing economists have long held that the housing rebound, when it comes, will be uneven. The markets that benefit first will be the ones with the strongest core dynamics; places where house prices never got out of hand, cities where a diverse and progressive employment base drives job creation, towns that continue to draw population despite the economic recession.

Richmond comes in at #12 out of the top twenty markets in this survey!

Specifically, they say the following about Richmond:

Market Health Indicator: 37.3

2009 Total Building Permits: 3,042

2010 Building Permit Forecast: 3,329

Richmond is another market on the mend. The city of 1.24 million is a state capital and home to several universities. The median price of a home here, $198,000, fell only 5% last year. Now, the region, which boasted a below average unemployment rate of 8.4% at year end, is poised to start adding jobs again. Market Intelligence expects employment to rise 0.3% in 2010. Permit levels are expected to rise by roughly 10%, though they won’t come close to 2008′s level of 4,970.

You can read the entire article here.

What do you think? Are we poised to see a better-than-average real estate market here in Richmond?

For more information, see Richmond VA Condos.

Richmond VA Seen On the Mend is a post from: Richmond VA Condos

Sometime last week, I was driving around with a client through a typical suburban neighborhood and I made the comment about a new home for sale that looked huge and overdone.

“That is a classic example of pre-2008 architecture.” What I think I was saying was that its style and presence were from a different era. It was an era that ended as fast and abruptly as any era had ended before, but it was over.

The home was oversized for the lot it was on and it seemed to have every bell and whistle imaginable. It felt like it was an $800,000 home in the old world. Today, I wondered if the builder (or more accurately, their banker) could get $450,000.

The home was built under a completely different set of circumstances and inputs during a time when nothing having to do with money or real estate really mattered. It was built to appeal to the psyche of a nation who felt financially bullet-proof. It was built when pricing was going up so fast that it was hard to overpay. I guess things have changed.

The financial crisis/recession/whatever you want to call it has affected almost everyone in some way. It shook our confidence and made us look inward. It taught us that being long lasting, even if slightly behind the times, was fine. It taught us that a useful life of a product should be longer than 6 months. It taught us to focus on value and quality. It taught us to eschew excess.

But here is the question: Is this shift a permanent one or a temporary one?

As we have begun to emerge from the meltdown of 2008/9, the public voice has changed. The public says ‘we want higher quality, even if it mess doing with less’ and the magazines and experts are predicting ‘craftsman style’ and ‘green’ and ‘the return of the bungalow.’ That all sounds nice, but what is selling is something eerily similar to what was selling before…just for less.

The new housing stock has definitely shifted from larger and loaded-up to either smaller and loaded-up or larger and stripped down. Builders are all re-tooling their product lines to one side or the other. Right now, it appears as if the stripped down big box is winning.

The public seems to be buying as much square footage as they can but without all of the bells and whistles. Saying size doesn’t matter apparently doesn’t mean that it doesn’t matter. I guess size provides its own luxury.

So time will tell if there really has been a shift in what we desire or rather these next few years will be just a tapping of the brakes on our quest forward.

What do you think?

For more information, see Richmond Virginia Condos.

How long before we forget? is a post from: Richmond VA Condos

As we enter the first true ‘new’ market any of us have seen in the past 20 years, we can be sure of one thing….2009 ended on December 31, 2009.
Ok, not funny.

But seriously folks, here is what we do know:
Fact 1
Where are the new houses?
No one is adding ‘for sale’ inventory. This is pretty much universal and cuts across all property types and all regions of the country. Historically, the USA absorbs about 1 to 1.5M new houses each and every year. Beginning in the middle 1990’s, the average approached 1.5M and gradually rose to its peak in 2005/6 of over 2M.
In 2009, we built less than 600,000. In 2008, we built less than 700,000.
What does this mean? It means that we are heading for a period of undersupply of housing. From the time that a new home is demanded and it is delivered, the lag time is about 9-15 months, depending on the season, region, size, etc. The lack of supply will be acutely felt soon (mid-year, maybe?) and will carry us into 2011.
The undersupply of housing is probably needed to allow pricing to recover a bit (more on this later).

Fact 2
Equity makes a comeback.
For those unfortunate souls that bought 2-4 years ago, they have seen their property values drop by 10-20% (or more…) depending on region, asset class, price, etc. The bottom line is that the folks who bought with leverage are upside down and the ones who put money down have seen that equity vanish.
That being said, as the loans age and/or are refinanced at some of these amazing low rates, the balances are being paid down 2-4% per year. If we get a moderate increase in value (as much as 7% is expected in some markets) then some folks could see as much as a 10% swing in equity. That would be HUGE for the market.
As we move into 2010 with no new supply, then the buying public will be forced to look at re-sales. The inability for the re-sale market to sell for less than the debt on their respective properties in 2008/9 forced many to stay in place and ride out the storm. This will begin to ease as debt levels and market values begin to move in opposite directions as opposed to the same direction.

Fact 3
The Food Chain Analogy
Sharks eat tuna (I think) while tuna eat something smaller and so on until you get down to plankton. It works exactly the same except oppositely in the real estate world. Think of real estate as more bottom up than top down. When the world went black in 2007/8/9, the real problem was creating the transactions at the bottom. If no one buys the first house, then no one can move up (or even sideways). With no one moving up to house two, no one gets to three….you get the picture.
Several important things are going on at or near the entry level that are changing things. The first time home buyer credit has been expanded to include more people, not just first-timers, and it allows people with higher incomes to benefit. Expanding the base of new buyers is important, albeit at the expense of the future buyer pool, but I digress…..suffice it to say that when someone looks back and says that they bought a home in 2009, they will view it as one of the best decisions ever made.
Secondly, FHA finally expanded many of their programs. The lack of leverage in the market was as responsible for the fall as any other factor. Once a degree of leverage was added back to the market, we found a floor. When your 401k gets cut in half and your boss says you may want to update your resume, you are not too keen on coughing up 20% to put down on a home, regardless of the perceived price. Putting down 5%, however, is a risk at least worth considering. Leverage is/was/will always be key. Dramatically altering down payment options changes pricing dramatically. We are now returning to early 2000’s lending practices.
Lastly, you need to look no further than pricing. Pricing has come down in conjunction with interest rates meaning the affordability factor is as strong as it has even been. The rent versus buy decision can be justified with a simple formula (which one costs me more on a monthly basis) and the lure of being able to afford more house now than ever before (or at least since 2002) is pretty powerful. With the threat of job insecurity diminishing, the collective buying public can see the opportunities.

So, in summary, I feel pretty good about heading into 2010. Of all of the inputs to the market, at the end of the day, supply and demand is really what we are talking about. Supply lags behind demand by at least 12 months and supply is still trending down sharply. Almost every other indicator is neutral to positive as it relates to demand.

Real Estate Predictions for 2010 from the Front Line is a post from: Richmond VA Condos

January 1, 2009 – 400+ condos for sale in Zone 10

December 20, 2009 – 180 condos for sale in Zone 10

Didn’t see that one coming, did you? I am not sure anyone did.

What happened? Who bought all these condos? What does this mean for the future? We will talk about each of these one by one.

1. What Happened? Sometime in late April, after the market had literally been dormant for about 9 months, the first wave of people began to stick their toes in the water. The development community finally found the holy grail of financing, FHA, and began to get their projects approved by the federal agency. This provided the most important aspect of recovery, available AND realistic financing.

The fallout of the crash which helped lengthen and deepen the adjustment in values, was the inability to get anything financed. The lack of available financing led to a decrease in demand which caused property values to fall which caused fear which caused less willingness to lend which….you see the pattern. Once the developers caught on to the need for FHA and understood what was needed to get these projects approved, FHA provided the safety net that was sought – market rates and higher leverage. 96.5% loan to values and good rates and all of a sudden, the buyer showed up.

Later in the game, the local banks that had financed much of the construction also began to show up with programs to allow the end users to get financing for properties where FHA was not available. These projects, which had been struggling only for a lack of available financing, now with the financing barriers removed, began to sell….albeit at prices lower than projected during construction…..but they began to sell.

We are now entering the 2010 market with interest rates in upper 4% to lower 5% range, a ‘normal’ level of inventory, little-to-no new inventory being added, an expanded tax credit, Dow 10,000 and a stabilization of employment. Hmmmmm…….

2. Who bought all of these condos? People with the following characteristics: they live in an apartment, have a good salary and stable job and an advanced degree or skill set, they do not have anything to sell and either a little savings or a parent with some cash. When you combine all of these factors, you end up with a buyer who has the ability to buy up to a $250,000 condo with 3.5% downpayment and a 5% interest rate who gets $8,000 back from the government for doing so! In other words, a $0 transaction. Who wouldn’t want to take advantage of that?

By far and away, the buyers of 2009 were the young professionals of the world who elected to become owners instead of remaining renters. They absorbed the majority of the condo market and saved us all. If they bought early, they may have overpaid by 1-3% relative to those who came later, but they also probably got the better units. They will look very sharp in about 3-5 years…..

3. What does this mean for the future? It means recovery. As long as there was as much excess inventory in the market as there was (which can also be argued that the reason for the excess was a result of lack of financing instead of lack of demand, bit I digress) there was never going to be a recovery. With demand returning to a ‘normal’ level (think 2003), we are now heading to a normal market, with one new problem…no one is building anything right now! At the current level of absorption of condos, we will be out of inventory by middle-to-late 2010, which means moderate price increases and the recovery of the resale market. Once we free up the system to allow for move-ups, the middle and upper end of the markets will recover as well.

In summary, understand that the USA should build about 1M houses per year (historic number of housing starts in normal markets.) In the height of the bubble, we were building about 1.6M. Right now, we are building about 300k new housing units and this has been going on for the last 24 months. The pending lack of supply SHOULD mean a slight, but sharp, increase in values sometime in 2010 and a decrease in marketing time required to get a home sold. Until the banks feel safe about lending to the builders, it could take quite a while to get back to production levels necessary to put demand and supply back in balance.

The Year We Absorbed is a post from: Richmond VA Condos

Venture Richmond announced this week that over $1B in new development projects were either completed or got started in 2009 in downtown Richmond. Not too shabby!

The announcement highlights the positive impact that VCU and the VCU Medical Center continue to have on downtown Richmond:

$110 million worth of new facilities at Virginia Commonwealth University’s MCV campus, including the eight-story, $71.2 million Molecular Medicine Research building on the site of the former nursing education building, the new Perkinson building for the dental school, and a recreation center.

and looks forward to another VCU-boost next year:

One of the biggest players in town, VCU, is in the middle of planning its $158.6 million tower for the School of Medicine.

VCU associate vice president Brian J. Ohlinger said the project should allow the medical school to grow by a third, educating 1,000 would-be doctors, making it one of the largest medical schools in the country. VCU hopes to open the new building in 2013.

We are very lucky to have a growing Universtiy downtown to mitigate the effect of the economic downturn.

You can read the entire article here.

$1B in Downtown Richmond Development is a post from: Richmond VA Condos

Proper financing has always been the single biggest challenge for the condos at the former Miller & Rhoads building on Broad Street.

Since the condos aren’t yet ‘warrantable’, buyers were having a difficult time getting lenders to approve their mortgage applications.

…conventional financing had dried up, notably for condominiums that didn’t meet guidelines set by Fannie Mae and Freddie Mac, government-sponsored entities that back mortgages.

The Miller & Rhoads condos do not meet Fannie and Freddie’s required occupancy levels. Also its ties to the hotel hinder approval.

Thankfully, the developer has been able to establish relationships with local banks to provide financing:

C&F Mortgage Corp. is offering a 20-year adjustable-rate loan with interest rates about a half percentage point higher than the going rate of about 5 percent on a conventional 30-year, fixed-rate loan. The Midlothian-based lender will fund up to 50 percent of the loan amount for a single loan or 80 percent on two mortgage loans for second-home buyers.

“We just got the program in place and we’re seeing some interest,” said Brandon Beswick, regional manager for C&F.

Others lenders on the project are Village Bank & Trust in Midlothian and Franklin Federal Savings Bank in Henrico County. “We go slowly into any project and limit our concentration of loans,” said Steven Lohr, executive vice president at Franklin Federal.

Franklin Federal is offering a 30-year fixed-rate loan for 80 percent of the loan amount with an interest rate of about 6 percent.

Moreover, the developer is holding paper thus reducing the down payment required:

The developer, New Orleans-based HRI Properties, will do second mortgages for 15 percent of the total purchase price, thereby allowing buyers to finance 95 percent of the cost.

You can read the entire article here.

Call me at 804.xxx.xxxx or send me an email for a personal tour.

Miller and Rhoads Condos Experiencing an Uptick in Sales is a post from: Richmond VA Condos

In an important sign that things have stopped getting worse:

The number of Richmond-area residents making a first claim for unemployment insurance after losing their jobs declined to 4,504 in October from 5,057 in September, the Virginia Employment Commission reported yesterday.

“For the last 60 to 90 days, claims have definitely lightened up,” said William F. Mezger, the commission’s chief economist.

The RTD article also references one of the important sources of stability in the local economy:

“The colleges provide a lot of stability in Richmond, and the expansion at Fort Lee is one of the biggest projects in the country,” Mezger said.

And also points out that, though times are tough in Richmond, it’s not near as bad here as in other areas of the country:

Richmond had the ninth-lowest unemployment rate among major metropolitan areas, the U.S. Bureau of Labor Statistics reported yesterday — but other Virginia areas did even better, with Norfolk-Newport News posting a 6.5 percent unemployment rate and Northern Virginia a 4.7 percent rate. The statewide rate for October was 6.3 percent, well below the national rate of 9.5 percent.

You can read the whole article here.

Jobs Losses Decline In Richmond is a post from: Richmond VA Condos

We’ve actually seen an uptick in calls about real estate lately, but the new Fed Reserve report is decidely mixed:

Regional economic activity is looking more mixed than it had earlier in the fall, economists at the Federal Reserve Bank of Richmond said yesterday.

Retail sales, housing and banking saw marginal increases, they said in their latest contribution to the so-called “Beige Book” national economic analysis.

It would seem that the uptick we’re seeing is also being felt elsewhere in the region, though perhaps driven by the fear of missing the November 1 deadline for the new buyer credit:

While real estate agents across the region reported better sales, one Richmond Realtor reported a significant drop in sales as potential buyers worried they would miss the Nov. 1 deadline for a federal tax credit.

You can read the full article here.

Fed Reserve Report Shows Mixed Signs is a post from: Richmond VA Condos