U r b a n T r e k k e r

Feds Pulls Out of Mortgage Market

Just in time before the Spring season, the Feds is pulling out of the market. This will affect home buying. The mortgage lifeline is drying out. The Feds been propping the housing market in keeping interest rates low for awhile. But, market haven't fully recovered yet. In Washington DC, 2009 home sales was definitely better than 2008, but it's total number of homes sold still lower than 2004.

These dissenters also warn that mortgage rates could shoot up, perhaps to 6 percent or higher, because private investors buying securities would demand a greater rate of return than the Fed. To reach it, lenders may have to raise rates for consumers.

[via Washington Post]

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Live Chat: BRAC- Arlington and Beyond

We'll begin this chat at about 12:30pm. 17,000 employees will be relocated out of Arlington county, which will be the biggest lost ever for the region. Will talk with Arlington BRAC team to hear what the county is doing to replace some of the jobs and how it's going to impact DC region. The BRAC team will be here to answer any questions you have about the transition. So come and join the conversation.

Foreclosures to Drop in 2010

Oh well, this has been happening (for a while) over here, in Washington DC region. I'd be so surprised if these days, you put a contract to buy foreclosure, with "no" competition from other buyers! Via MarketWatch Real Estate Weekly. 

A University of Michigan researcher is predicting that foreclosures will begin to fall next year, dropping from 2.75 million in 2009 to about 1.75 million in 2010 and 2011.

They will decline to less than an annual 1.5 million by 2012, said Dennis Capozza, professor of finance and real estate at Michigan's Ross School of Business. The drop in foreclosures will be due to better national and local economic conditions, including a strengthening economy, slower house-price depreciation and tighter underwriting of mortgages, he said.

Home Remodeling Payback 2009-2010

Remodeling magazine just released its 22nd annual Remodeling Cost vs. Value report for 2009-2010. Conventional thinking would have thought that remodeling kitchen and bathroom still offers the best value, right? Not anymore. It's the other part outside and inside the house that offers better return for your money. The greatest return of this year's cost vs. value reportedly come from curb appeal, outside your house projects.

Seven out of top 10 high-yielding value, are exterior projects, that cost under $15,000 and yet offer the best return. The driver: recession. It's the economy. Many homeowners have decided to scale back their projects and be frugal. Another reason for the popularity is the tax credits for energy-efficiency upgrades, like roof, windows, etc. (more on energy-efficiency tax credits). Most buyers wouldn't mind paying a bit more for new and energy-efficient windows.

The best bang-for-your-buck: entry door replacement (steel). This is where cheaper is better. The job cost $1,172 on average, however, the resale value of $1,470 recoup 128.9% of your investment. If you replace your entry door with fiberglass door, instead of steel, it doesn't offer you the same return. Not only the product cost more than double at an ave. of $3,490, it only recoup half of (steel) for a mere 65.2% return on your money. Not bad. But not the best investment for the money.

Here are the top 10 mid-range remodeling projects. (in bracket shows cost recoup):

1. Entry door replacement steel (128.9%)
2. Attic bedroom (83.1%)
3. Deck addition wood (80.6%)
4. Siding replacement vinyl (79.9%)
5. Minor kitchen remodel (78.3%)
6. Window replacement wood (77.3%)
7. Window replacement vinyl (76.6%)
8. Basement remodel (75.4%)
9. Major kitchen remodel (72.1%)
10. Bathroom remodel (71%)

For our area, Washington DC region, the four value added mid-range projects with great potential, are attic bedroom, backup power generation, basement remodel and roofing replacement. The more expensive projects, even though cost more, the recoup cost is far less than the money spent. In other words, it's not worth it.

For full coverage, go here and here.

DC October Home Sales Up 40.58%. Ave. Home Price off 16.76%

According to MRIS data, Washington DC October '09 home sales inched up to almost 41%. Sales up because prices are down in single home and townhouse/ rowhouse market. The total number of homes sold up from 414 units to 582 units while the average sales dips -16.76% from $398,450 to $380,000. The median price (50/50 up or down prices) off -3.66%, down from $394,450 a year ago to $380,000.

This is where the segment of the residential market got hit the hardest: single family home (that includes rowhouse). Average home sales off -34.84% from $1,020,059 to $664,710. Ouch! The townhouse/ rowhouse segment, also see the average sales price down -14.35% from $545,562 to $467,279.

On a month to month trend from '08 to '09, the number of homes under contracts is the highest over a year span. The number of homes went under contract is a little bit above the 450 units mark. The trend is encouraging, but looking at the data (listings and under contracts), DC still have more than a year of homes supply. Home inventory for single home and rowhouse stands at a bit over 14 months! A *strong* buyers' market. Motivated sellers are willing to talk to you.

 
image: GCAAR

Condo sales last month is better than in '08. October sales up 25.9% from 189 units to 238 units with average sales around $412,983. The median price (usually use in comparison) is at $355,000 down from $360,000. The number of active listings also decline -18% from 1,459 units to 1,197 units. Condo inventory shows that it is still a buyers' market. It stands at 6.52 months.

Seventy-eight percent of condo sales is under $499,999! First-time home buyers? This trend corresponds to the type of financing use to purchase homes. One-third of purchases were financed with either FHA or VA loans.

Here's the breakdown:

Conventional     268

FHA                  173

VA                     12

Assumption        32

Cash                  85

On all types (single home, rowhouse, townhouse, condo, co-op), we are seeing a trend that inventory is down. Maybe sellers are decided to stay put. They are not selling their homes at this market, unless they're forced to make some life changing decision..

Making the Case for More Universal Design in Housing

Stumbled into this reading after seeing a relative struggling to move around the house on her own. She's diagnosed with cancer. Her body is so frail that she can't even move on her own without assistance. To do the activities of daily living, becomes a big challenge for her. Most houses in this area, have steps to go up and down, very inflexible layout and difficult places to reach.

A typical rambler house (in this area) just don't give the flexibility to live independently forever, in my opinion. Which brings me to the first time I saw universal design implemented was at the recent Solar Decathlon competition.

The Interlock House caters to older adults who want to live independently, economically, and sustainably in their own home while retaining the security of an established neighborhood and support network. To appeal to this demographic, the house incorporates numerous features designed to prolong the number of years that a person can live independently and comfortably. The house features universal design, with no steps or difficult places to reach. This ensures uninterrupted ease of use and compensates for the sensory and mobility losses associated with aging. Certain features, such as the enclosed sun porch and ventilation, may help individuals with certain chronic conditions. For instance, arthritis sufferers may benefit from the therapeutic warmth of sitting on the sun porch.

Why is it builders don't push for this kind of design? The target market is there. Waiting for something to happen. Not all wants to live in a retirement home when they get older. Most people, if they can, will postpone the move and stay in their house until the time come (that forces them) to downsize.

A good reading to start with..

Universal Design in Housing

Short Sales Headaches

Short sales volume on the rise. Big bank like Wells Fargo sees their short sales volume have doubled from January to September, according to Reuters. While first lien holders willing to reduce their payoffs, secondary lenders are gaining more power in negotiating the payment with primary lenders. These junior lenders know they're holding the bag. It's about 'deal or no deal.' That's why these lenders are now asking 10 % of short sales up from average payoffs of just $1,000 to $3,000 a year ago.

Read more here..

Washington DC Housing Econometrix

Just read the recent report 'The US and Washington Area Economic Performance and Outlook' from Center for Regional Analysis, George Mason. This report is updated regularly. Here's my observation below.

We have two things that keep the housing market going: Federal spending and jobs (low unemployment rate).

Washington DC is a very unique market. Being the nation's capital, the structure of economy is largely supported by the Feds. So are the jobs creation. About 1/3 or 33.3% of our local economy is supported by the Feds, in which 15.2% of it probably contractors related and the other 18.1% is procurement related. The local business supports about 38.9% of our economy.

 

FEDs spending: the total federal spending for the DC metro area have tripled in a 22 years span (1985 to 2007). Just in the last 10 years, Fed spending for our area have gone up from under $80 billion to over $130 billion. Without this kind of "Federal" spending, our "local" economy would be in the tank! No kidding. There won't be housing market turnaround..at least for sometime. So, stop complaining about feds spending. This region benefits from it.

The job situation in our area, not as bad as other places in the US. The jobs growth, if any, is drop 2/3 from a little bit over 50,000 new jobs to just 17,000 new jobs. So long as we still have jobs added to our area, no matter how slow, our local market will still be insulated. Because our economy is government dependent, the government is the 'only' sector that has added new jobs from August of 2008 to 2009 by adding more than 12,000 new jobs while shedding jobs from other sectors (construction, retail, financial, information and more) that resulted with a net negative (or loss of) 42,100 jobs. Among the 15 largest job markets (metropolitan cities), DC region has the lowest net negative employment growth at -42,100 vs. Los Angeles, which stands at more than -200,000 jobs.

In the bigger scheme of things, US unemployment rate is at 9.6% vs. Washington DC at 6%. If we expand a little bit more, Virginia has the lowest unemployment rate at 6.7%. Maryland is at 7.2% and DC has the highest at 11.4% in September of 2009. Is that why homes in DC are not selling as fast as in Northern Virginia or Maryland? (Anyone knows why DC unemployment is high despite it is the nation's capital?)

 

HOUSING MARKET TREND

With regard to housing market, comparing the local sub-market conditions between Washington DC, Maryland and Virginia, we can see from the charts below while Maryland slowly recovering,  District of Columbia (specifically) still struggling.

  

 

   

data & charts: CRA-GMU

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Tysons-Dulles Corridor Real Hot Topics

Image via Wikipedia

I attended an event this morning hosted by Bisnow on 'Hot Topics in NoVa.' The hot topics surround commercial real estate development around Tysons-Dulles corridor and transportation.  Congressman Gerry Connolly (VA-11) and Til Hazel (attorney-developer) were the keynote speakers. Before Connolly becomes Congressman, he was the Chairman for Fairfax Board of Supervisors. Listening to his talk, now I understand why Tysons Corner is clogged during the day specially during rush hours. The burb is a classic example of suburban city that is auto-dependent.

Imagine this. There are 150K jobs in Tysons. The area covers 1,700 acres with only about 17, 000 people live there. And 150,000 people commute into and out of Tysons at exactly the same time via Route 7 and 123. D'oh. That explains why we need to create another mode of transportation. Furthermore, eighty-percent of the storm water is untreated. Connolly says, there are some 46M of stuff in underground Tysons.

The next generation of Tysons will have to have the density right. Higher density, that is, than originally zoned for. He also mentioned that Vienna and McLean benefit with the transformation going on in Tysons.

Dulles is the largest corridor of employment in the Commonwealth. Thus, making Tysons a very important corridor. He reminds the audience, that the first reference to Dulles metrorail was in 1962. 47 years later we could see it coming. What's interesting is the way the transportation dollars is distributed. It's complicated and have uneven playing field between roads and transit. For transit the state will have to apply directly to the Feds. Though, Dulles metrorail matching funding formula is 80/20, at the end of the day, when this project finally completed in 5 years, the real dollar from the Feds translates to only 16% of the total cost.

Hear this: Washington DC is the only OECD country without direct transit connection to a 'major' airport. 

The discussion for density in Fairfax and Northern Virginia will be the moment of truth, specifically for Tysons Corner area. If we look at the example, Arlington, even though it has 4x the density, it has no impact on its roads. 

So land zoning is an important part of the future.

The idea of transforming Tysons to a new level urban, mixing it with suburban mindset, where more density means more cars scares a lot of people. You don't buy an apartment next to a metro station without paying the premium. There's a reason for that. Overcoming fears and resistance to change will be a big challenge for the task force.

Springfield is next. (I think this is what Connolly means, Springfield will be the next big project here).

Til Hazel really speaks his mind. ( I would add here his tone is less upbeat than Connolly). He said twice that "Virginia is financially broke!" We have education, transportation problems. Furthermore, he says that Virginia doesn't have transportation plan. And we have serious NIMBY (not in my back yard) problems.

The thing that he said rings true is, that many of the big employers here do not participate at all - in policies. They're non-participant. Business community is disengaged? Why? Because when things are bright, no one cares. He said that we need to find solutions to these issues: transportation and education. He's been in commercial real estate since cows outnumbered people. (He definitely has a lot of knowledge on these issues). So, get with it. Don't think someone else will solve the problems. Problems won't be solved until you take charge. That's so true.

Next, we move to a discussion around transportation, commercial real estate market for this area. Cathy Delcoco, EVP of CB Ellis gave a state of the market update. When comparing '06 vs. '09 commercial vacancy rate in '09, it was totaled 14.2% vs 8.2% in '06. She said we'll double that vacancies at the end of the year. Absorption rate in 2001 is net negative rate. People think just because we're in the nation's capital, we're not immune to this. We are. She said that we've seen negative absorption rate this year around 700k SF.

What's true in residential, like location is prime factor in real estate, is also true in commercial. Vacancy rate for outside the beltway is 16.7% vs 9% for inside the beltway.

The market drivers around here, is the Feds. The top 25 transactions either defense related or GSA deals.

Listening to the panelists, it seems that everyone agree about how commercial real estate is the next shoe to drop. Loans are coming due in 2010-2013, while values of building not equal to debts or have gone down.

A bit shift into residential, the price appreciation from '01-'05 of 14, 14, 20, 22 percent have been "completely" wiped out, we're now back to residential land value equal to 2001 prices.  One of the panelists said that while residential slowly coming out of the woods, commercial only beginning to see their part of tsunami. The first hit was residential. Then corporate, stock market, last is commercial. It will be a couple of years before market recover.

Other hot topic heard there: transportation. We need enormous sum of money in VA dedicated for transportation about $100B at the state level. The question is who's going to pay for it?

One of the panelists, I think it was Arthur Fuccilo, EVP Lerner Enterprise, said that 'tax increase is the only way to solve this problem, and no one wants to talk about it.'  I'm sure a lot of people in the room don't like to hear what he said..

--

Full disclosure: I was there on behalf of EcoBuild.

NVAR: 4 Months Supply of Inventory

No September blues. That's the headline on NVAR (Northern Virginia Association of Realtors) website for the recent September market stats. Not only Northern Virginia has 4months of inventory, but also pending sales (the lingo for homes under contracts) up 13%. For one thing, my observation from the field, is there's not enough properties on the market to support buyer's home spree. 

Here's a snapshot.

 
image: NVAR

With the exception of townhouses, sales are up for single homes and condos. For the same period, the number of single homes sold up from 674 in 2008 to 740 units in 2009. Townhouse units sales drops from 554 to 490 units. And condos sales up from 422 to 454 units. Moreover, the average days these properties stay on market improved from 93 days to 63 days.

The November 30 deadline, to claim the $8,000 first time buyers credit, is approaching fast. So, as a result, it's becoming very common to see multiple contracts - not one or under 10 contracts on the table - but, 20, 30. It's way up there. That's why the number of home sales up 2%. And average price up 5% from $407,748 to $427,881. If we look at the median price is still under $400k. The sales median price is $375,000, which have gone up 8% from last year's at $348,250.

The good thing is: prices lower than 2008. YTD ave. sales price is off -9.36% from $472,180 to $427,996. And interest rates way down there.. uhm, like below 5%. So, homes have become more affordable for many.

I'm rushing to go to a meeting, so we'll continue looking at the details soon..

data: NVAR

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