In the shadow of Washington, D.C. – you betcha. While some observers may say it’s all about the home buyer tax credit and low interest rates – they haven’t been watching pocket markets around the country.

Northern Virginia is one of those markets that even if you doubled the inventory – it wouldn’t be enough in today’s market environment. Multiple offers (half dozen or more in many cases) are the norm; houses selling above asking price; prices moving up in zip code after zip code, month to month and year over year.

The absorption rate is dropping dramatically. (Absorption rates are measured by dividing the number of pending sales into the number of active inventory – any measurment under 3 months is considered a sellers market).

Absorption rates are pointing to a turning real estate market

While not all markets around the country have turned around at the rate here in the D.C. area – the sellers’ market has already arrived!

During the run up last time, interest rates were in the 8 – 9 percent range – so buyers aren’t afraid of rates nearly double today if they think they are buying in an escalating market. Which is starting to happen in market after market.

For more research, see www.MRIS.com and www.Realtor.org.

Until next time…

For my agents, OF COURSE, they know exactly what a short sale is, what it isn’t and how to handle it! What’s most frustrating is how our colleagues WANT it to operate, versus the way it really should be according to the contract.

First – let’s start with just a couple facts of what Short Sales Are NOT -

• The contract is NOT with the bank, but between the owner of the house and the buyer. Once they agree to terms, it is “ratified.”
• Once the house is “ratified” (meaning, the buyer and seller have agreed on the terms of the contract), the house is NO longer AVAILABLE and should be registered as Under Contract, or Under Contract with contingency (depending on the practice in your area).
• All other offers, while they should be presented to the SELLER, are supposed to be considered “back ups” to the primary offer.
• A “back up” offer is not required to be brought to the bank for 3rd party approval when the contract is ALREADY ratified.

And now here’s what a short sale IS:

• The owner owes more than what the house is worth AND cannot pay the deficit between those values AND the bank is willing to take less in payment than the mortgage amount.
• While it may not be as bad as a foreclosure, it is a negative hit to your credit.
• For a limited amount of time, those who go through a short sale MAY have some tax relief.

The Internal Revenue Service web site states:

“If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.”

“The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

“This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.” See more information from Publication 4681. http://www.irs.gov/pub/irs-pdf/p4681.pdf

If you’re thinking of short selling because your home has lost so much value – you have a limited amount of time to do so without carrying a heavy financial toll.

But understand that not all agents are created equal and the minority actually know what they are doing. While some associates are selling the majority of their short sales, the industry average in the mid-atlantic area is less than 50% actually making it to settlement.

Until next time…

Now, buyers and sellers alike are focusing on the Expanded Home Buyer Tax Credit passed by Congress Nov. 6, 2009. The expanded CREDIT (not deduction!) provides cash benefits to first-time buyers and to homeowners who are purchasing a second primary home.

First-time buyers are classified as purchasers who have not owned a home in the last three years; repeat buyers are those who have owned within three years or currently own a home and are moving into another home that will be their primary residence. For doing this, either person, if they qualify, can apply for tax credits (up to $6,500 for repeat buyers; $8,000 for first-time buyers).

These tax credits mean cash in the buyer’s pocket. The credit is applied to your tax bill as if you had actually paid it to Uncle Sam. Then it either comes back to you with a lower tax bill for the tax credit amount, or in the form of a check from the U.S. Treasury. The reason for these generous credits is that the federal government figures most home buyers will spend the money on the house – paint, carpet, windows, doors, appliances – thus creating product demand, and thus creating jobs.

The market is lining up to be a perfect storm for buyers and sellers in Northern Virginia:

• price appreciation (the bottom of the market is passed);
• historically low interest rates (in the 5% range);
• tax credits to help fix up your home (up to $8,000).

So What? What does that mean to you? Here’s the catch – you must have a ratified contract by April 30, 2010 and settle on your new home by June 30, 2010. If you’ve been looking to buy a home before prices escalate, with cheap money and get back money from Uncle Sam – now is the time.

Tim McLaughlin, senior vice president of Weichert Financial Services, answered a question from one a borrower about why all the good loans (low rates, low/zero point, and even product availability, seem to favor those with good credit 

Here’s his answer to the “five major dings” that affect your credit score:

There are five major “dings” that impact your DCS (Decision Credit Score, or FICO score) the most, some obvious, some not so obvious:

Maxed out credit cards: Doesn’t seem like a big deal in the grand scheme of things, right? Oh, it is: a maxed out credit card can reduce your DCS anywhere from 10 to 45 points, according to Fair Isaacs, a hefty price to pay for accumulating debt.

30 day late mortgage payment: In addition to the late fees, this occurrence adversely impacts your DCS by 60 to 110 points…a whopping impact for being late on your mortgage.

Debt settlement: Also known as debt arbitration or debt negotiation, it is an approach to debt reduction in which the debtor and creditor agree on a reduced balance that will be regarded as payment in full. The downside, a 45 to 125 point drop in your DCS.

Foreclosure: Unfortunately, an occurrence we are seeing far too often as of late. In addition to the event, it will reduce your DCS 85 to 160 points.

Bankruptcy: The event that would have the single biggest negative impact on your DCS, reducing your score 130 to 240 points; an almost irreparable event.

In addition, there are dozens of more minor “dings” that could impact your credit score as well; stumble across enough of them and they will really add up, potentially costing you dearly.

For example, following a 30 day late mortgage payment, a consumer with a 720 original DCS could pay as much as $95 more each month on a home mortgage if they were looking to acquire or refinance a new loan (based on a $275K loan amount).”

Thanks Tim. For more information, Tim can be reached at www.weichertfinancial.com.

“At $8,000 for each first-time homebuyer and now $6,500 for move-up buyers – how much is that going to cost the American taxpayers?”

Good question. Not knowing how many people will be able to take advantage of it, we’ll have to start with some guestimates.

Keep in mind, first, that about 4.5 million existing home sold in 2008 altogether and we have been on track to sell roughly the same in 2009.

For 2009, the tax credit was  only for first-time buyers and up to $8,000 (10% of the sales price, not to exceed $8,000). So not everyone received the $8,000 if they purchased a house less than $80,000 - but let’s go ahead and say they did for argument sake.

If the stats hold true, and that is about half of all buyers are first-timers, then there were 2.25 million buyers that qualified (assuming they didn’t go beyond the income limits – which many did). But for simplicity, we’ll say they all qualified.

Simple math puts the tax credits at $18 billion for 2009 – that doesn’t have to be paid back. For all the money that’s being floated out there to stimulate the economy, this is probably the best plan in play.

Now, before all my conservative friends blow a vein behind their eyeballs that are now popping – here’s what happens when a homeowner purchases a house (vs., say when someone buys a car or some other depreciating asset). They spend money on it. Lots of money.

The foreclosures/short sales that have made up most of the market for the last 2 years are mostly in paltry condition and need paint, carpet, appliances, countertops, cabinets, windows, landscaping, rot replacement, sump pumps, mold remediation, heat pumps, etc.

Unless you saw these houses, you just wouldn’t understand. I’m not talking “updating” homes that would otherwise be in good living condition, but making them inhabitable altogether. In fact, regular home buyers like you and me can’t even finance many of these houses because of the condition they’re in.

People get into a tizzy about home flippers swooping in and making “all this money” by flipping a house. Let me tell you – without the flippers some of these houses would completely fall apart. Remember, that lenders WON’T LEND MONEY on a house without complete bathrooms, that are mold invested, lack certain appliances, etc. And the REO banks WON’T fix them up to sell them. They just let them deteriorate while they wait for a buyer.

Enter the investor/rehabber who purchases the house with either cash or off-line financing, then fixes it up to pristine condition, sells it at a fair price and moves on to the next project. They are providing a much-needed service to even make the houses salable, much less inhabitable.

Now, as the market turns around in city after city (that’s what the increase in  pending sales is all about across the country), we’ll see an increase in sales and a use of the home buyer tax credit to fix up the housing pool.

The tax credit for home buyers has played its role and now it will go away April 30, 2010. The question for consumers is will they recognize and act on a good deal when they see it?

How Much:

• First Timers: Up to $8,000 (10% of home purchase) but not for anyone buying a house more than $800,000
• Move Up Seller/Buyer: Up to $6,500

Who?

• First Timers – meaning you haven’t held title on a property in the previous 3 years.
• Move up sellers/buyers: who have lived in their homes five consecutive years.

Income Limit:

• Adjusted gross income of $125,000 (single); or $225,000 (married filing jointly). The credit fades out from these incomes and is elminated for those making more than $145,000 (single); or $245,000 for married filers.

Check out this link from the Virginia Association of Realtors for more details: http://www.varealtor.com/Portals/0/docs/ConsumerInformation/EXTENDED_First-Time_Home_Buyer_Credit_09.pdf

Pending sales let you know buyers believe prices have hit bottom and are starting to jump off the fence. As pending sales (contracts written) pick up speed, the number of closed sales follow suit. Once sales surpass year-over-year percentages, the media starts jumping on board, officially announcing the market has turned.  Well – we saw the turn last fall (nearly a year ago) and all the numbers have been in a positive run since.

Next – I reported that inventory was hitting lows that would result in higher prices. And that’s exactly what happened. In my last issue of Around Town, I shared with you how the average prices have been moving up now for 7 consecutive months– well, that’s now 8 months straight for the whole region. And that brings us to the final indicator of a turning market, and that would be the Days on Market.

As of July 2009, the average days on market (DOM) for houses sold in Northern Virginia has hit the 60-day mark. The significance of 60 days is that it is half the time it took (120 days) to sell a house at the height of the buyers market, which was in January 2008 (see the chart on the flipside of this newsletter).

So what? What does this mean to you? Well – it doesn’t take much to figure out what’s happening here. Prices hit the bottom for buyers, buyers jumped off the fence, inventory dropped, prices are moving upward and now more buyers are jumping in droves, dipping the time on market.

We are selling more and more regular sales these days – non-foreclosure – and that means regular sellers are moving up to the larger, more updated home since they have plenty of first-timers and move-up buyers in line to buy their home for a profit. The market is tightening up!

Make your move now while there is still plenty of higher-priced inventory available.

The answer is – integration. It’s not just the next Social Media outlet (Facebook, Twitter, et. al.); and it’s not just the old standby of a newsletter or print ad.

The astute marketer must use all the media to get the word out. We are in transition. While Facebook is the largest social media outlet in the world – still, only a fraction of all the people in your market place are logged on, sitting down to it, and keyboarding into it every day.

Thus – you MUST integrate your outreach. The same message with many outlets. I’m finding the old fashioned 1-page newsletter mailed to my personal sphere is creating more response and money to the bottom line than any other outreach today – pushed by other media – blog, Facebook, web site…

The presentation above demonstrates the transition we’re flowing through right now.

A good example is Britney Spears’ latest back-to-school campaign for her new fashions – she has completely shut out television, cable and traditional web sites from the marketing plan. It’s a use of two tools: video and social media – and a twist in her strategy.

Click through the presentation above for the details.

It’s not about the tools, but your strategy!