Thursday, May 15, 2008
For sale: Spacious home outfitted with six bedrooms, 5 1/2 baths, granite countertops, stainless-steel kitchen appliances, a three-car garage, exercise room and wet bar -- all for $875,000 in the Red Cedar West subdivision of Leesburg where houses once sold for $1-million-plus.
"I thought I'd try to take advantage of the low prices in the foreclosure market," said Ryan Magazine, who owns a Leesburg carwash and signed a contract on the foreclosed property as an upgrade to his previous home. "Right now is a great opportunity to get a house."
The foreclosure signs that have been sprouting up in less-affluent communities since 2006 are beginning to appear in the well-off suburbs, attached to houses that once cost $1 million or more. Although those kinds of homes are in the minority now, real estate agents predict the numbers will swell.
In Loudoun County, 60 houses priced over $750,000 are among the 932 foreclosures and short sales -- an exit strategy of selling the house at a loss with the bank's blessing to avoid foreclosure.
Affluent neighborhoods have been able to stave off foreclosure longer, but the effects of once-popular loans, such as adjustable-rate and interest-only mortgages, are beginning to take their toll, economists and real estate agents said. The consequences are being seen in places such as Loudoun County, where the rapidly expanding population and income levels meant razing dairy farms for new subdivisions over the past two decades, as well as Fairfax and Montgomery counties, where new subdivisions proliferated and demand drove up prices.
"We're seeing the first group of people who got in way too high and bought at the top of the marketplace in the middle of 2005 and end of 2006," said Tony Arko, an agent with Market Advantage Real Estate who co-writes the blog Loudoun Foreclosures.
While the expanding subprime market enabled lower-income borrowers with uncertain credit histories to buy and refinance property, interest-only mortgages allowed middle- and upper-income home buyers -- and investors -- to buy beyond their purchasing power, said Robert E. Lang, director of the Metropolitan Institute at Virginia Tech in Alexandria.
"Who would have imagined that people would use this as an excuse to heavily leverage themselves?" said Lang, noting that higher-income people found ways to buy bigger, more expensive houses, endangering themselves just as lower-income, first-time buyers did. "And now they're caught in the same way."
One in every 519 U.S. households received a foreclosure filing in April, according to RealtyTrac, an online directory of foreclosed properties.
Homeowners can have trouble paying their mortgages for a variety of reasons, which can be set off by illness, divorce, unemployment within dual-income families or business losses, for example. Investors, who bought up properties gambling that they could quickly resell them for a higher price, became another source of foreclosures when housing prices fell.
In the $750,000-and-higher foreclosure price range, there are 76 homes on the market in Fairfax County and 66 in Montgomery County out of the thousands of foreclosures and short sales in both jurisdictions, Arko said.
"It's small," he said, "but it wasn't even on the radar, it was so insignificant last year."