DROdio Real Estate

In a May 20, 2008 article in Washington Post, it was reported that the Northern Virginia county of Fairfax is creating a program to help offset the county’s current mortgage crisis and prevent neighborhoods from declining in value and attractiveness. It is a program that county officials want adopted in order to address the needs of workforce housing so that middle income Americans can achieve ownership during this down time in the economy. If you are a first time home buyer, this means that you could be eligible to purchase a foreclosed home at a cut rate. This will even save buyers even more money since the county will fix up these abandoned homes before they sell them to first time home buyers. The reasons why this below market price purchasing opportunity is one that cannot be passed up is:

• You actually get to see the house instead of purchasing a foreclosed home through an auction. These properties might also have unforeseen expenses such as damages and back taxes that are outstanding. Foreclosed homes are bought anywhere from 10% to 50% below market value.
• If you want to buy the house as an investment, this may be a great time to get in since investors might try to capitalize on this opportunity and buy these below market price properties to rent.
• Virginia is a great place to buy foreclosed homes. Laws allow you to get these houses even if your credit score is less than perfect.
• The U.S. Congress is working to pass the Foreclosure Prevention Act of 2008. If this is passed, people who purchase a foreclosed property will qualify for a $7,000 tax credit.

As foreclosure signs continue to pop up in beautifully built and affluent neighborhoods across the Virginia suburbs, houses that once cost well over a million dollars are now falling to lows that have not been seen in the 21st century. Agents predict that the number of this type of homes will continue to rise throughout the year as foreclosures continue.

Skeptics who believe that the Fed is going to bail them out before more people foreclose better think again. In a Wall Street Journal article last month, it was reported that the State Foreclosure Prevention Working Group, comprised of banking regulators and 11 state attorneys general, found that 7 out of 10 homeowners who are seriously delinquent on their mortgage payments are not on track to receive any kind of help with their payment troubles. Put simply, the rising number of loan delinquencies is far outpacing the increase in loss mitigation efforts by lenders. If a suitable housing package is not passed by Congress before the November elections, this could mean that the market could be flooded with more affordably attractive houses.

The media keeps asking, where the silver lining is? Well these storm clouds have yielded one and there is a lot of optimism out there by those who passed up buying a house three years ago, because they could not afford the artificially created prices of that time. Sellers should sit up straight and realize that a foreclosure crisis is often equated with a buyers market.

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An article in a May 20, 2008 issue of the Wall Street Journal, reported that despite the mortgage crisis and falling house prices, downtown properties have seemed to be unaffected by the housing downturn.

The article explains that in the bigger cities, the closer that residential properties are to the center of the city, the better they are maintaining their value. Of the three metro areas the article examines, all show resilience to tumbling prices and may serve as a great option for those buyers who are looking for an investment that is already gaining value and sure to surge even more once the economy begins to recover.

What are the reasons for this phenomenon? Many speculate that gas prices have something to do with it. Yesterday, CNN reported that according to AAA, the national average of gas is up 9% from a month ago and 19% from a year ago. Yesterday, the nationwide average for regular unleaded hit $3.831 a gallon.

As the price of crude oil continues to affect the price Americans are paying at the pump, it is also having a direct affect on the charm of living in the suburbs. In the Washington, D.C. area, like many other metropolitan areas, the average house price has plummeted. While the average of the area is an 11 percent decrease, the price decrease in parts of the housing bubble magnet, Ashburn, Va. of Loudoun County, has seen a much steeper plunge. Ashburn’s 40 mile distance from the center of D.C. is a good reason that foreclosed houses in northern Virginia and the Maryland suburbs of D.C. are not getting many bidders at house auctions.

In addition, NPR reported that the median home price for inside the city of Washington is actually up 3.5 percent from a year ago. Economists are seeing this trend in others cities as well, such as Los Angeles, San Francisco, New York, Chicago, Miami and Boston.

According to CEOs for Cities, a Chicago based pro-urban nonprofit, the price of gas tends to get overlooked as a factor when evaluating the reasons behind the mortgage crisis. In their recent report, Driven to the Brink, the decline of house prices have been more severe in the metropolitan and suburbs that require lengthy commutes and where there is a lack of public transportation alternatives.

The same conclusion was drawn from the Urban Land Institute’s (ULI) report on U.S. infrastructure investment, Infrastructure 2008: A Competitive Advantage. The report shows that since 1980, the number of vehicles on U.S. roads has increased 95 percent while road capacity has grown by only 4 percent. This has resulted in longer commute times and more money spent on gas. Living further from the center of the city and work has created a car dependence that has become chokingly expensive for property owners in the suburbs. According to the report, Washington, D.C. is one of 23 large U.S. metro areas that are having problems dealing with this increase.

What this means to buyers and investors is that gas prices are changing the urban housing market. Now, people are not only looking at where a house is located, but they are also taking the price of gas, commute time, and the amount of time loss for driving into consideration before purchasing. No longer will buyers be taking their commutes for granted as living further out from the city has become an additional expense rather than a luxury.

Among the other factors that are driving people to downtown areas are the array of amenities, retail, restaurants, arts and culture and fast-paced lifestyle that downtowns offer. This is not only attractive to younger generations, but also empty nesters and baby boomers who are beginning to retire that make a person feel young, despite your age.

Buying a property closer to the city is one way for people to combat the consequences of drivable suburban development. Living in a mix use and pedestrian-friendly area are definitely gaining in popularity due to not only changing social and generational tastes, but also as a way of avoiding traffic congestion, helping reduce greenhouse gas emissions, and reducing the number of times people need to stop at the gas station. Downtown homes are a sure bet and low risk investment for those who want to buy during the current down cycle.

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Today Bloomberg News reported, that billionaire Warren Buffet, told reporters in a press conference in Frankfurt, Germany that the U.S. economy is not even halfway through the credit crisis that has already sent millions of hard working Americans in foreclosure on their home mortgages.

“I don't think the effects of the credit crunch are far from over at all," said Buffet to reporters as he expressed his belief that the current credit crisis has not reached the halfway mark.

What does this mean for Americans and economists’ outlooks for when the market will correct itself? It may give us a sign that the American homeowner is not out of the woods just yet.

As the sub-prime mortgage crisis continues to not only hurt large investment firms and put more financial stress on the families who wanted a slice of the American dream by owning a home, the American homeowner continues to be the one who loses the most. When the financial burdens become too great, American homeowners are being forced to foreclose. Those who are afraid to lose their only shelter and avert foreclosure are choosing to file for bankruptcy. The American Bankruptcy Institute (ABI), a nonpartisan research and education organization, reported two weeks ago that the number of U.S. consumer bankruptcy filing increased almost 48 percent nationally in April from the same time just a year ago.

How can we help homeowners? First, the media must change their consensus of focusing on the mistakes of consumers and the lenders of sub-prime mortgages. More attention must be given to how the whole mess originated with the decision of Wall Street to buy bundled mortgages. This would lead to such predatory lending practices such as the No Income, No Asset loan that required only a pulse and statement of what you owned to purchase a home that led many people to default on their first mortgage payment.

More must be done on the federal policy level. Cutting a check for $600 dollars to help a homeowner avoid foreclosure or bankruptcy on a payment that is already months behind and consumes a majority a person’s gross income is not a fix. It is not even a ban-aid. A band-aid helps heal something. Even comedian Jon Stewart of Comedy Central’s, The Daily Show, poked fun at President Bush’s stimulus package, by stating that the $600 stimulus package has no value in helping a homeowner it the real world.

“I think that will work out great if your home is made out of plastic and located on Baltic Avenue,” said Stewart referring to the cheapest property in the Monopoly board game.

Senator Chris Dodd (D-CT), Chairman of the Senate Committee on Housing, Banking, and Urban Affairs has been working with the Senate to pass a comprehensive housing package that will do a lot more do prevent more foreclosures. This week, he announced that there is currently bipartisan support for a housing bill that will be up for consideration.

Whether Buffet will be correct in his prophecy is still yet to be determined. However, if it is true, how long will we let the American homeowner continue to lose ability to pursue happiness? Will potential sellers be stuck with houses they hoped to turn for a profit, while buyers find it impossible to get a loan?

For buyers and sellers this creates two different scenarios. As long as the credit crunch continues, and a potential buyer has an average credit score, this could mean getting a great house and a low price. It may be difficult since lenders are less likely to lend money during the credit crunch, but lenders will always want to lend. The American economy is known to recover from hard times and it is safe to assume that housing prices will eventually increase. However, don’t expect them to be at the artificial highs they were at during the bubble of 2003 – 06.

For sellers, this could mean that the storm clouds you were expecting to past very soon could hover a bit longer than expected. As long as the credit crunch drops buyer demand, you can expect it to be harder to sell a home you acquired during the bubble. What will be required is for you to do your homework and compare prices in your area for similar properties. Make sure you are pricing yourself out of an already tough market to sell in. Make sure you are not pricing yourself out of an already tough market. Some are finding it affective to start at a lower price than starting high and chipping away as time passes.

Robert Krueger is a communications associate at the Urban Land Institute (ULI). He is also a staff writer for ULI’s Urban Land Magazine.

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