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So far the on again off again foreclosures have had little effect in the marketplace. It could be that we will see more disruption in the future, however I believe this was another overblown story about the housing market. We have seen some contracts canceled by the seller because of title issues and the actual volume of bank owned sales seems to have slowed. We are not seeing significant drops from previous levels of activity and I doubt that we will. I do believe there are problems that are being created by the methods used in the foreclosure process. At some point in the future these problems will have to be addressed and it will be expensive to correct the errors. If I were to make one recommendation to everyone purchasing a bank owned property or short sale, it would be to purchase owners title insurance and to never use the company representing the bank. If you have the correct insurance these problems will be dealt with by the insurance companies not the current property owner. There are great deals out there but you must be careful or you may find today's great deal is tomorrow's nightmare.
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I have worked with many different types of people in the investment business, stockbrokers, money managers, real estate investors and others. They all seem to look at the idea of an investment as being something you put money into and take a lot more money out. One thing they all seem to have in common is they do not believe that residential real estate is a "real investment". If it is not purely financial, they discount its validity.
Residential real estate is the most valuable investment many of us will ever make. When you invest in residential real estate for your primary home you are not only investing your money, you are investing your time, your effort, your emotions, and your family's future on the choice you make. Although you may, and probably will, make a significant profit from the purchase of a home over a reasonable period of time, the most important return on investment that you will receive is the well-being of your family and the stability it provides for them. This should always your first investment and once you have made this investment and provided for your family's future then you should consider making other investments. Real estate works in cycles and the current down cycle in the market makes this the perfect time for your first or next real estate investment. You may never have the opportunity to make a purchase of this kind again in your lifetime.
A word of caution. Never take the equity out of your home. The only time you really have equity is when you sell. Real estate has economic cycles, and like all cycles, they go up and down. There are many people who do not have the "equity" in their home today that they had three years ago, however if they had not refinanced their home to finance their lifestyles they would be in a position to wait for the cycle to return to the upside. If you follow this logic, your investment in your home will always be a positive investment.
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I would like to tell you a story about a guy I know. His real name is Mr. Time Not Right; I will call him Mr. "T". I've met Mr. T and many of his relatives hundreds of times in my real estate career. Mr. T is a guy who always thinks he has the right answer and "thinks" he is smarter than the market. When Mr. T goes to buy, he always waits until the market has begun to appreciate. It is not a bad idea to enter the market as it is beginning to climb and enjoy the ride!, however Mr. T is never satisfied to simply buy what he needs, pay a fair price and make the best of it. He always has to squeeze the last dime from the sales price and he never thinks the property is worth what the seller is asking. Over a long period, Mr. T and his agent will write many offers, but they never end up in a contract, and when they do, he has waited until the prices have appreciated significantly. I call this chasing the market. The other side of Mr. T's approach comes when he goes to sell. At that time, Mr. T always feels that his property is worth more than it really is. He starts with a high price and continues to reduce it until he receives far less for the property than if he had priced it correctly in the first place. I call this following the market down. If you follow Mr. T's strategy, you will always end up on the short end of the transaction.
Quite a few years ago, I met a man who was a legend in Loudoun County, his name was Marcus Bles. Marcus saved his money and invested in real estate. He invested in land and always paid a fair price for it. Many people thought the price he was paying was too high. You are probably familiar with many of his purchases. He gradually assembled almost all of what became Tysons Corner, and when he sold it he reinvested the money in a couple of parcels now known as Ashburn Village, University Center, and other land totaling approximately 6000 acres in Ashburn. One afternoon we had a discussion and he explained his theory, which made him hundreds of millions of dollars in the real estate business. It was simple "Buy High and Sell Low". I thought this was a little crazy until he explained his philosophy meant "he left something on the table for the other guy". He always offered a fair price to the seller and accepted a fair price from the purchaser, not trying to squeeze every last dollar from the sale. By doing that, he was always able to accomplish his goal and enjoy his life. Although not well-educated Marcus was one of the smartest men I ever met.
Our current real estate market presents us with many challenges. It has been three years of turmoil followed by a lot of uncertainty, but we are reaching the point where our lower price ranges have stabilized and a much clearer picture is evident in our higher price ranges. This market has created an ideal situation for people who wish to buy. They can expect a very nice return over the next 7 to 10 years. If you are a seller, unfortunately, the market will only support the current prices and you will have to sell at those prices. Buyers and sellers beware don't be a Mr. T! Set proper expectations and you will achieve your goals.
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When you are in the market to buy a new home there are many variables that you have to consider. You should always solicit numerous opinions from people you can trust and use the services of professionals to help you make decisions. You should use a Realtor to help find the property, a home inspector to certify the condition of the property, an experienced mortgage broker, termite inspectors and other professionals you may need. Remember the old expression "penny wise and pound foolish."
Of all the things that you have to consider the single most important consideration is location. We are lucky to be living in Northern Virginia. It is the best real estate market in the nation and will continue to be because of the presence of the federal government. The stability of any real estate market is dependent on the growth and stability of the local job market, and the federal government and the associated businesses it attracts will provide for steady growth for the rest of our lives. When you combine that with the tremendous initiatives to attract businesses that are being developed by our local and state governments we could not be in a better place. I was recently part of a meeting that included some of the top business professionals in Northern Virginia. As we went around the table talking about our businesses and what was happening in our various industries everyone commented on "how lucky we were to be living in Northern Virginia." It is not only in real estate. It is across the board one of the best environments for business, jobs, recreation, and convenience in the country.
A word of caution! If you are looking at real estate in another location take a close look at all of the elements that go into making that market. We have seen in the Midwest that relying on one industry, the auto industry, is not a safe bet! You can fall in love with the area but before you spend your money make sure it is a wise investment. As we all know real estate prices go both ways, up and down, and you will always need stable employment and multiple types of industries to maintain market stability.
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Fast facts….
August 2010 versus 2009
Loudoun County
Sales Volume (– 16%)
$304,310,458 vs $360,284,721
Unit Sales (– 22%)
728 vs 928
Average Sales Price (+8%)
$418,009 vs $388,238
Fairfax County
Sales Volume (– 8%)
$1,153,853,052 vs $1,256,991,941
Unit Sales (– 16%)
2361 vs 2811
Average Sales Price (+9%)
$488,714 vs $ $447,169
Source Broker Metrics 9/6/10
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For the last four years, we have been going through a tremendous amount of turmoil in our country and around the world. It has reached a point where we feel unsure about what to do next financially. We have seen all sorts of "bubbles" in our financial markets and it all appears to have started with real estate. What we have seen is the end of a natural cycle known as "The Baby Boom!" Those of us in the baby boom generation have reached a point in our lives where we no longer need, nor want, more and bigger houses and many other items which we have been purchasing in increasing numbers over the last 60 years. This should have caused a reasonable decline in real estate values, however when coupled with the bubble created by the irrational subprime loans we saw prices shoot up way too fast and now they have come down equally as fast and are at or near rock-bottom. What this means for us now is that we have entered into a new market, arguably a better and more sustainable market especially in real estate.
In a chart published in a previous edition of this report a comparison was made showing how long it would take for real estate prices to return to their peak. It was estimated, in our market, that we would not see our prices increase to the previous levels until 2015. Another chart depicted what the value of a home would be in the next 10 years if you purchased it now. The chart shows that we have a tremendous opportunity, now that we are at or near the bottom of the market, to purchase real estate under favorable terms and conditions including interest rates that will provide for tremendous financial gain over the next decade. We have all said at one point in time or another "I wish that I had bought that before the price went up." We are now in a market that is giving us a once-in-a-lifetime opportunity to roll back the clock and take advantage of prices that are the equivalent of 10 years ago at unheard-of interest rates for the last 50 years. What we tend to do is follow the pack if everyone is telling us that real estate is a bad investment we accept that conventional wisdom and begin to believe the same. That is the worst thing that we can do! What we should do is look back at history! Look back at your father's experience or perhaps your grandfathers and you will see that the price of real estate as well as everything else is a cycle. You now have the opportunity to take advantage of the new cycle in the real estate market, at a cost that is at or close to the bottom and should increase in value with the normal ups and downs for the next 50 years!
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