Fairfax Living Real Estate Blog: District of Columbia

Here is another one from the Virginia Association of Realtors Newsletter. It seems that Fannie Mae is looking at sueing specifically, but not limited to, "Strategic mortgage defaulters." I have preached about this before, those who strategically default think that they will not pay any price for walking away. One way or another you will pay (and we all will pay for them not paying). I have mentioned in blogs before that the money one might save by a mortgage default could cause your credit card rates to skyrocket among other things. Good luck getting a good rate on that next car loan. I had said before that before anyone considers a strategic default, they should look at the long term consequences. Well, here is another one, a potential lawsuit from Fannie Mae. I can only imagine (I am not a lawyer) that any judgement would include garnishment of one's wages and harassment from the IRS. The message here is: If you are thinking to default because you just don't feel like paying, perhaps you should step back and think about the results of your actions for awhile. Then decide if it really is the best course of action to take.

Senator Robert Byrd passed away last night at age 92. No matter what you may have thought about him personally, he was an icon in the U.S. Senate and he fought for the people of West Virginia. Senator Byrd was know for moving federal jobs to West Virginia to help the state with its high unemployment and reputation as one of the poorest states in the country. An example is the FBI fingerprint office which was moved from Washington, D.C. to West Virginia several years ago. Senator Byrd will be missed in the Senate and by the people of West Virginia. Here is a link to the article from marketwatch.com.

While in the grocery store the other day, the cover of Time Magazine caught my eye, The feature article was about the bankrupt (or heading in that direction) state governments across the country. Just this past week, I read in The Washington Post that after receiving tens (or maybe it was hundreds) of millions for road construction in 2009, and only $238,000 in 2010, Fairfax County, Virginia (population about 1.1 Million) will only receive $1024 for road repairs and construction in 2011 from the state. One county supervisor commented that amount would not even cover lane striping on one section of roadway. To top it off, tonight, I learned on NBC News that California is facing a 1.7 Trillion dollar deficit, A council member in Oakland stated that if every library, several other government agencies, and city hall were closed, they still could not close the budget gap. And finally, the city/suburb of Los Angeles, Maywood, is laying off every single city employee and outsourcing essential services to other juristictions.

What the Hell is going on? Yes, there are alot of foreclosures, but the banks still pay the taxes don't they? Sales tax revenues are down but by that much? Wow! this sounds like a major shift in the way we live as Americans. This is truly scary, the foundation and infrastructure that made this country great is collapsing. What will that do to quality of life and the housing market over time? What scares me is I have seen pictures of cities in some other third world countries that looked fantastic 40 years ago only to see pictures today and see a crumbling infrastructure. One city that comes to mind off the bat, actually two cities, are Havana and Manila.

The D.C. area already has the second worst traffic in the nation after Los Angeles, what more if the road construction on state owned secondary roads is halted or the condition of the road is allowed to deteriorate.

I don't have an answer. If I did I would offer it. What will likely happen is those with money will pay a fortune to live on a metrorail line (that system is in sad shape too) or walking distance from work. The District of Columbia has actually been seeing steady growth and neighborhodds being rebuilt even in this recession.

In closing, if you are or need to move to the D.C. area, one of the main things you need to think about is how you are going to get to work. Based on what I have read,seen, and personally experienced, you will want to minimize your driving as much as possible in order to maintain your quality of life and that may mean paying more, and getting less, for the convenience of being near work.

I thought I would get your attention with that. In Today's Washington Post section "Sunday Ready To Rent" that advertises all of the apartments is an article on why you should rent rather than buy. On the surface it may make sense to some folks after seeing their housing values plummet. One glaring error, if not just misconseption stood out like a boil on your forehead. Before I begin, I should point out that the editorial was produced by the Washington Post "special sections department" in conjunction with Apartments.com and it is clearly stated that it "did not involve the editorial department of this newspaper" (i.e. - A biased piece or advertising editorial).

Here are the reasons the article says you should rent. The first being that 43.7% of respondents in a survey said they preferred to rent because of a strong desire for the convenience of a maintenance person available for household repairs, not having to tend a lawn or snow removal.

The National Multi-Housing Council (NMHC) survey also stated that 23% or renters do so for financial reasons. I Interpret that as bad credit, no downpayment, or inability to seek financing for whatever reason.

Here are a few reasons that did make sense:

1. Young Adults just beginning their careers - This makes sense if you are unsure where your career will lead you in the short term. If you think you may have to relocate or anticipate having to move for a promotion in the near future then renting does make sense. You are likely not going to have a downpayment saved up yet. 

2. Single parents who do not have time for maintenance or the money to buy a house in a desired school district - I am all for getting your children a great education. If there is no way you can afford a home in a good school district then perhaps you should rent until such a time that you can buy.

3. Professionals who relocate often - I only partially agree with this. My advice on this would be to buy a condo and rent it out (just make sure you buy in an area that has good rental potential). Have the condo managed professionally (i.e.- put it on cruise control and let the rent pay the mortgage and the property appreciate when you move).

Points I do NOT AGREE WITH:

 1. Empty nesters who want to travel - I disagree with this. You should just buy a condo so at least your property has the potential to appreciate while you are not there. Rent is a total waste of money especially if you are using an apartment as a storage unit.

2. Anyone tired of long commutes to work - Instead of buying a single family home further out, take advantage of today's low, low mortgage rates to buy a condo close in. With the tax deduction, your mortgage will likely be close to what you would have paid in rent and you have a potentiall appreciating asset. If nothing else, you should get out of it what you put in it. Can you do that when you rent?

3. Anyone who wants abundant amenities and social activities where they live - You could say the same thing about a condo complex if you pick the right one.

Here is the most incorrect point made in the infomercial editorial

The article states that you should rent and put your money in stocks and mutual funds that appreciate on average 7% a year for stocks and 8% for bonds while real estate historically only appreciates at 5% a year.

Why is this such an uninformed statement? Let's take a closer look. Suppose you have $10,000 to invest. You could put 3.5% down on an FHA approved condo and buy a $285,000 unit. If that unit were to appreciate at 5% a year (there are no guarantees of course) then you would build equity in the first year of $14,250 not to mention the tax deduction on mortgage interest and taxes. That is a 42.5% return on your investment.

Assuming you picked the right stock or bond, you would earn $700 and $800 respectively and if you sold them would have to PAY taxes on the gain.

No one can predict what the housing market is going to do next with certain accuracy nor can anyone predict what will happen in the stock or bond market. I will leave you with a paraphrased quote from one of Gary Keller's books that is striking. In about the year 2000, the average renter had a net worth of less than $10,000. The average homeowner at that time had an average net worth of $175,000.

This article, although meant to spur interest in apartment living has some fundamentally incorrect information regarding home ownership. While apartment living, or renting a house, can make perfect sense in some instances, the "editorial" is misleading and does not represent the true facts of home ownership.

Just a quick note. There is a market update coming across that the IRS has found that $9,100,000  has been conned by inmates in prison and many serving life sentences.The worst part is that IRS employees have been caught scamming the treasury as well in this latest news report.

It's this kind of activity that hurts legitmate homowners/buyers and makes it harder to justify extending the credit. If you haven't noticed already, traffic seems to have dropped off since the credit expired and that seems to be backed up by the media reports in the past 24 hours.

Here is the link to the article.

If you are a minority and have been hit with a foreclosure, you are not alone. Whites had significantly more foreclosures but the percentage of minority foreclosure rates was much higher. Between 2207 and 2009 blacks lost about $240,020 homes to foreclosure, Latinos, 335,950. The actual number for whites was not availabe but the foreclosure rate for whites was 4.5% versus 7.9 and 7.7% for blacks and latinos.

A couple of reasons were cited. Higher unemployment rates among minorities and less cash reserves in these two groups versus the general population.

The FBI has busted 500 people in a mortgage fraud operation known as "Operation Stolen Dreams." The government works slower than we would like but they tend to eventually get around to getting things done.

http://www.fbi.gov/page2/june10/mortgage_061710.html

I guess that is just stating the obvious. Without a job, the fear of losing the one you have, or reduced hours and wages, it becomes difficult for people to buy a home, and in some cases pay for the one the have already. Another article from Marketwatch.com on the ongoing catch 22 for real estate. I thought I would share.

http://www.marketwatch.com/story/without-jobs-housing-rebound-may-take-years-2010-06-14

Agents have occasionally asked me why I don't do alot of home "previews." I do them but only when I am looking at an area I am not that familiar with and usually that coincides with a buyers interest in that area.

Why do I not bother? Just a very short time ago relatively, I used to drive from Bethesda, MD to Annandale, VA in about 40 minutes on an average to good day in evening rush hour after 5:00pm. Due to the BRAC expansion/relocation, construction on the Capital Beltway, and the usual wrecks and breakdowns, not to mention just volume, that drive is now about an hour and a half or longer and exceeds the original 45 minutes now even in midday traffic. Hello, Los Angeles, we are right behind you with the nations second worst traffic. Atlanta and Orlando, You're not far behind us. Today, previewing three houses took me over three hours. I have better ways to use my time and will likely propose that a group of agents in my office get together and compare notes and share so that we are not all previewing the same houses and driving (walking can actually be faster) through the D.C. metro area cluster you know what. Also, would help on the carbon footprint.

There are alot of good things about the D.C. area. Some of the best school systems in the entire nation, excellent colleges and universities, and better than average hospitals. There is alot to do and much of it is free, courtesy of the National Park Service. There is a lot of history here. A lot of parks, and overall the quality of life is great. It is expensive to live here  and people still want to move here, mostly because of the job market. The job market and housing market for that matterin the Washington, D.C. area, does not experience the ups and downs experienced in other areas such as So. Cal. and the Mid- West. The housing market has been pretty stable and the prices are within, at least in my neighborhood, 10% of the peak in 2006. There are multiple offers on almost any reasonably priced house and if you haven't bought yet you might want to do it while the rates are where they are (very low). We have bottomed out and are moving up in my humble opinion.

If we could only solve the transportation infrastructure problems; the #1 complaint in the region. Recently, a poll stated that 10% of the population was thinking to move because of the traffic. If 10% moved the traffic would be alot better and for awhile at least, the listing agents would be busy. The issue might be a glut of houses and a short term downward spiral in prices. I am thinking of moving when my kids get out of college (relatively soon) and they get settled. I might just move far enough out to miss the traffic if my kids stay in the area. If they leave, depending on where the go, I might be right behind them. If it were not for the awful, almost daily grind of traffic, I would almost have no reason to leave. If the traffic problems could be resolved, The Washington, D.C. metro would be a great place to live, and about as good as it gets.

Todays Washington Post, Front Page, an article on the Federal Government busting Taylor, Bean and Whitaker's Lee Bentley Farkas.

http://www.washingtonpost.com/wp-dyn/content/article/2010/06/16/AR2010061603438.html?sub=AR