Real Estate Live

Welcome to Real Estate Live, an online discussion of the Washington area housing market, featuring Post Real Estate editor Maryann Haggerty .

Maryann's been with The Post for 18 years and has served as real estate editor for the last five years. She's been a business and real estate editor and reporter for about 25 years. In all that time, she still hasn't figured out where you can find a lovely but inexpensive house in a charming neighborhood.

Today, we discussed the specifics of the market, from condos and investment properties to contracts and mortgages.

The transcript follows.

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Maryann Haggerty: Hello, folks. In downtown D.C., the sun seems to have peeked out, so I hope that's a good sign. Thanks for joining this discussion.

Why don't I start off with a few numbers? As the regulars here know, I have no clue whether there's a housing bubble out there. But I do have a report on my desk, from the National Association of Business Economics, which surveyed a panel of 202 economists.

Of those experts, only 14 percent believe there is a national housing bubble, but 79 percent believe there are major local bubbles in various areas. (But they don't say which ones!) Of those, 83 percent said they would buy a primary residence at today's prices, but just 17 percent would buy investment property.

So let's hear what you have to say!

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Sterling, Va.: Maryann, I'm a firm believer in statistics, but I don't have access to MRIS. Do you have any idea what the year-over-year home sales figures for August 2005 look like? Is there sign of a housing slowdown in the NW section of D.C.? Any anecdotes? Thanks.

Maryann Haggerty: I just pulled up a few MRIS reports, and here's what they show. (Please, folks, don't ask me about every county in the region. These reports are set up in a way that makes it cumbersome to get more details. So I've just sampled some biggies.)

So, for you number wonks:

In Northern Virginia (Fairfax/Arlington/Alexandria/Falls Church): 3,112 units (houses & condos) were sold in August, down 8 percent from August 2004. Time on market increased to 21 days from 18. Inventory numbers are sliced-and-diced differently, SO: Fairfax County only, single-family only: Inventory of unsold houses is way up, about 60 percent higher, to 3,350.

Montgomery: Units sold dropped 7 percent, to 1,767 from 1,897. Days on market also dropped, though, to 22 from 25. Single-family inventory up 15 percent.

In D.C.: There were 1,012 units sold, up 20 percent from 841 last year. Days on market crept up to 28 from 27. Inventory of unsold single-family houses rose 17 percent.

In both areas, prices popped WAY up -- maybe 18 percent in Montgomery, 25 percent in the others.

As far as Northwest only -- too small an area for me to measure in this circumstance.

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Falls Church, Va.: I am 25 and about to get married. My wife to be and myself make a combined income of $160,000 a year. After pricing out some real estate options and calculating our earning from our condo we would have about $120,000 in cash for a down payment. This would barely allow us to buy a small $600,000 to $700,000 rambler home in McLean.

How come people with much lower incomes then us are living in $800,000 to $900,000 homes? Isn't real estate out of whack if the person living in the home couldn't afford to buy it? The average household income for Fairfax County is $80,000 and our income is much higher.

Maryann Haggerty: People are living in those houses for one of three reasons:

-- They have lived there a long time

-- They bought the house with equity they built up in another house they lived in for a long time

--T hey came into a lot of cash otherwise.

This brings up something I have been thinking about: We seem to have lost the perspective that a house, as a financial investment, is not supposed to be a lottery ticket. It is supposed to be an inflation hedge. Homeownership is defensive investing. So the housing market is NOT out of whack if someone is living in a house that they couldn't afford to buy today. Rather, their inflation hedge has allowed them to maintain their lifestyle.

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Capitol Hill: Hi Maryann -- two weeks is too long between chats! I'm sure you're swimming in questions. We're would-be buyers in North Capitol Hill with a pretty low price range (by D.C. standards). Capitol Hill North is awash with overpriced properties that just aren't selling. Inventory grows every day and we're just astounded by the number of sellers that aren't lowering their prices at all, despite sitting on the market for six weeks or more.

What are your thoughts on putting in offers that are lower-than-list prices? It doesn't seem like folks in D.C. are doing that, though it makes sense for buyers to start taking control of things and putting in offers that are more in line with the condition and neighborhood of the property. We've been searching for a place all summer, and things have been pretty gloomy at times, but I feel a change in the air... perhaps from a "seller's" to a "buyer's" market?

Maryann Haggerty: Put in a bid for what you think the property is worth. The seller can only say no. (Well, sometimes they can get very insulted and say "no" in a sorta nasty way, but that's their right. It doesn't hurt you.)

Here's a sort-of rule about real estate markets in transition: Sellers can be very reluctant, almost stubborn, about lowering their prices. And those sellers who put their houses on the market as a test -- "If we make an obscene profit on this house, we'll sell and take a round-the-world trip" -- are the most unlikely to cut prices. But people who really do want to sell -- say, they have a job offer in another city -- may accept a lower price.

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Concerned Agent, Alexandria, Va.: Hi Maryann,

I enjoy this discussion forum, and I know it is very informative for the regular Joe/Jane. My comment/question is as follows: The numbers of properties for sale around the D.C. Metropolitan area have dramatically risen, and prices have flattened out or even dipped in the certain localities. But I still see some real estate agents pushing buyers aggressively to put contracts beyond the sale price.

This may have been the "norm" back a few months ago, but the greedy agents, and the uneducated buyers, are ignoring the new reality on the ground. I am a licensed agent in VA, and I just did a quick number crunching for the Fairfax county area properties using MRIS. If you want to buy a property under $500,000 then you have a choice of 1,729 properties (Condo/Fee simple) available for sale (this doesn't include the condo conversions that are popping up everywhere in the county).

And of these properties, about 33% or 586 properties have been on the market longer than 30 or more days. Again, this is just in Fairfax County. If you add the surrounding counties and cities the number of listings would be even more. Please warn your readers that they don't have to jump on the first property they see, and should be aware of agents who try to push them into buying.

Concerned Agent.

Maryann Haggerty: Here's some advice from an agent in the field, who came up with some more interesting results from those same MRIS numbers I crunched...

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Picking a realtor: Hi. I am in the Shenandoah Valley and was wondering if you could give me some pointers on picking a realtor to sell my home. Since November and December are bad selling months, I am going to try to sell myself for these two months and then, if no luck, pick a realtor to sell.

Thanks.

Maryann Haggerty: I'll parrot columnist Bob Bruss' good advice on this one. Look around your neighborhood and talk to your neighbors. Determine which agents have been the most successful there. Interview at least three of them. Find out how they would price and market your house. Have them explain what they would do to earn that commission. Get references and check them. Then, based on your research, pick the one with whom you are most comfortable, and sign a three-month listing agreement.

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Bethesda, Md.: Hi, Maryann: Our condo has been on the market a week today, and there hasn't been a tremendous amount of interest (mostly neighbors at the open houses, not many agents bringing in clients). We priced it slightly below what the last comparable unit in the building went for. We don't want to carry two mortgages forever, but are not desperate to sell. My husband thinks it may take 30 to 60 days, but I keep telling him that's out in the real world, not in our market, unless you're talking about really expensive properties. Ours is less than $300,000. How long should we sit tight before we decide to drop the price?

Maryann Haggerty: Well, a lot longer than a week!

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Gaithersburg, Md.: I'm a new real estate agent in Montgomery County. Do you suppose real estate buyers/sellers are now more educated than in the past? What would you suggest are some of the main things new realtors must worry about in a market like the current one?

Maryann Haggerty: Yes, I do think buyers and sellers are a lot more educated. The heightened interest in the subject over the years, plus the increasingly easy access to information, have made the clueless consumer more of a rarity.

What should a new agent worry about? Well, first, you have to realize that many many of the new agents who jumped into the business because it looked like easy money are going to fail. They always do. Those who succeed will be those who take their business seriously -- it's a business, not a hobby -- work hard & provide excellent customer service.

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Virginia: I bought a house directly from the owner. There was an addition built in the '70's; I don't think that it was done with a permit. What problems, if any, will I face when I go to sell the house?

Maryann Haggerty: When you sell that house, you should disclose that the addition is unpermitted. If there are structural problems, that could turn a buyer off.

You may want to investigate the as-built permit process, to get legal. Or, if you don't want to do that for any reason, at least do yourself a favor. Have a good electrician in to look over that very important system & make sure it is safe. OK?

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Alexandria, Va: How can I back out of a new home pre-construction purchase without losing my initial escrow down payment of $20,000 (May '05)? The home will not be ready until July 2006 and the builder is having a hard time selling the homes. I just received their loan papers to start the mortgage process. Thanks, AK.

Maryann Haggerty: Read your contract. See what you have committed to. Maybe have a lawyer read it. You may have some outs there -- but the truth is that standard new-home contracts are tilted VERY heavily in the favor of the builder.

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Cleveland Park: My wife and I currently live in one-bedroom condo that we purchased last year. We are interested in buying a small row home in Capitol Hill this winter or early spring. Is that too soon to move and sell the condo? What is your outlook on Capitol Hill area? Thanks for your help!

Maryann Haggerty: Well, think strongly about making sure you live in the condo AT LEAST two full years, so you don't lose your capital gains tax exemption on any profit you make! "I just feel like moving" is not a good enough reason for the IRS to allow you a partial exemption.

And what do I think about the Hill? Well, I live there and I love it. I think prices have climbed at a sometimes-astonishing rate, but I also know that there are people, some of them first-time buyers, who have bought there recently. Your equity from the condo will help you in the affordability part of the game.

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Elkridge, Md.: Maryann, I've got a 1935 bungalow with the bedrooms and 1.5 baths. I'm going to have (1) an alarm system installed that's monitored by a company and (2) a propane-fueled backup generator installed permanently and hooked up to my electrical system (just to differentiate between it and the generators that can be temporarily hooked up).

In general, can you tell me how these two will affect my home's value? And what percentage of the cost will be recovered when I sell the house? Thanks!

Maryann Haggerty: Those will likely have little effect on home value. The alarm system is pretty much a standard in many neighborhoods. If that's the case in your neighborhood, you need to add it just to come up to even with the neighbors. (But your insurance company will give you a price break on your rate, so that helps.) I doubt you can put a dollar value on amount you get back on the addition of the backup generator, either. Off the top of my head, I would say some, but by no means all, of your investment. (Unless you happen to sell right after a big power outage!)

Both of these are the kind of upgrades you make because YOU want them, not because they're a big added bonanza at sales time.

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Norwalk, Conn.: I may relocate to Northern Virginia next year. We heard Route 66 is a mess. May try to be near Dulles Toll Road. Is the transportation issue down there hurting the resale of condos and houses? Realistically, what time of the morning do you need to leave in order to avoid the gridlock?

Maryann Haggerty: Oh, lord. Gridlock. I-66 is a mess (and a carpool-only mess during many hours). The toll road ain't so hot either. Despite all logical thought, horrible traffic and $3-a-mile gas don't seem to be depressing those markets, though.

What time do you need to leave? Depends what time you need to be where you need to be. I'd allow more than a hour in the main rush (even though "rush" has become a quaint old-fashioned concept here) to get from Dulles area to Arlington. Add even more time for downtown. Sometimes you're better off leaving AFTER rush, but not everyone's boss likes that idea.

Before you pick a location to live, please try to test the commute in real time, more than once.

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North Bethesda, Md.: We are thinking of purchasing in the North Bethesda area and wondered what you've heard about the likelihood of the Canyon Ranch project coming to that area. The real estate agents have said that the Canyon Ranch would make North Bethesda the "new" place to be in the area, but others have said that the Canyon Ranch development is not going to happen at all.

Have you or your audience heard anything about this project? And, assuming that this upscale spa does settle in, what would it mean for real estate values? Thanks for your advice!

Maryann Haggerty: That's been a squishy project -- it's not for sure yet, and not NOT for sure. Keep an eye on The Post for updates -- we do have reporters following it. Big commercial real estate projects often take a long time to pull together.

Now, what effect would this have on the neighborhood real estate market? Well, it will add about 400 high-end condos, plus apartments and hotel rooms. It may just improve the general tone of the place (or maybe it just worsens traffic, who knows?). But I don't see that it will by itself raise demand for other homes in the area. I mean, who do you know that decides where to live based on which spas are in the neighborhood?

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Odenton, Md.: I recently purchased a townhouse in Odenton very close to Ft. Meade, where thousands of new jobs are expected in the next year or so. What, if any, impact would you expect this to have on property values in the area, especially in light of the apparently slowing housing "bubble?"

Maryann Haggerty: I think Ft. Meade is one of those areas that is likely, in fact, to see a positive effect from the base-closing-and-realignment process.

Simple equation: More jobs means more housing demand. And some of those jobs are moving far enough that people may want to move. (Unlike, say, Arlington-to-south Fairfax. It's just not all that far.)

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Arlington, Va.: What would you tell a relative who was contemplating an interest-only mortgage in order to make the payments affordable to get a house in a "nicer" area? Let's say they were a young (30-something), married, two-wage household. I am just concerned because, if they want kids, how will they ever start paying off the loan if they can barely afford it now, and they have all the expenses (and possible lost income from the mom working less) of parenthood?

Maryann Haggerty: I would tell them to be very careful and work out their future budget. Do they have a realistic hope that salary will jump in the five years before they get the big payment shtick? (I mean, things are different for a lawyer on partner track vs., let's say, an environmental activist.) If I were really worried, I might give them a copy of the book "The Two-Income Trap," which is a big dose of cold-water reality in this circumstance.

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Columbia Heights, Washington, D.C.: I am facing a dilemma between paying off credit card debt and the idea of jumping in and buying my first home in D.C. At my current rate, I'll have the credit card debt paid off in a year. I'm concerned about the rising prices in D.C. and worry that I ought to own and stop wasting my money on rent. I have access to enough money for a down payment and closing costs from my 401(k) plan right now. What are your thoughts?

Maryann Haggerty: Pay down credit card debt first. It will screw up your credit rating. And try to avoid dipping into your 401(k) if at all possible. Please.

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Fairfax, Va,: Hi Maryann -- I am totally addicted to these chats!

Quick question -- how did you get access to the MRIS? Are you an agent? Or do you get special privileges as a journalist who writes about these things?

Thanks!

Maryann Haggerty: Not an agent, no special privileges at all. For the kind of numbers I quoted at the top of the chat, just go to www.mris.com and look for market statistics! They're not necessarily easy or fun to read, but they're all there. (Inventory stats -- again, public -- are at www.nvar.com and www.gcaar.com.)

Much of the job of journalists these days -- particularly business journalists, which is what I consider myself -- is to sort through the almost infinite amount of data available publicly and boil it down to digestible chunks. I spend 20 minutes with a calculator so that 20 of you have to spend just one minute reading...

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Washington, D.C.: Do you think the Washington, D.C., market slowed down because we are about to have a new mayor in 2006? What impact would the new mayor have on the market? In what section or neighborhood of the city would the market take off as it did in LeDroit Park, 14th & U St., Brookland, etc.?

Maryann Haggerty: Oh, geez, I think these are totally disconnected cause and effect!

(Of course, I also remember all the infuriated residents of Northwest who swore they would sell after Barry was re-elected that last time. And I can't remember one of them that actually did so.)

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Dallas, Texas: I've been wondering about two things recently since I have many friends who are currently renting houses. It appears that the rent they are paying is significantly less what the house payment would be if the house would sell. Isn't this some indication of a bubble? If housing itself is so in demand wouldn't these rents also be climbing to significant levels since the demand is for housing?

Has there been any studies of the housing rental market vs. buying in the D.C. area? Wouldn't this give more of an indication of what the true value of the market? I'm confounded with the idea that we try to compare apartment vacancies and rent to the housing market to indicate a bubble. I would say the population of those seeking to rent apartments is the same population that at any given time would be actively trying to purchase a house. Any thoughts? Also, any idea what percentage of home loads are now unconventional (interest only, etc)?

Maryann Haggerty: Indeed, when rents are significantly less than ownership costs, that is an indication of a bubble. I haven't seen any studies on this question in this market, and we haven't had the time to do one ourselves. It might be worth buckling down to some day soon.

This was in a story I edited recently: "Nationally, interest-only and adjustable products made up 63 percent of mortgages written in the second half of 2004, according to the Mortgage Bankers Association."

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South Riding, Va.: Hello!

I've been a realtor for 3 1/2 years and recently joined a group of investors who want me to find "distressed" properties. I've been studying about foreclosures, pre-foreclosures, etc. Is there a "simple" way to find distressed properties? These folks want to nearly double their investment, and have rehab teams, etc. to help improve properties. Thanks so much for your help!

Maryann Haggerty: If it was simple, everyone would be doing it. Sorry.

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Richmond, Va.: I recently moved to Richmond after many years in Northern Virginia, and I keep meeting so many former Northern Virginians! They ALL have moved down here for a better standard of living -- much lower housing costs, less traffic, etc.

I love it here, especially my beautiful, affordable house, in one of the best neighborhoods in the city, walking distance to shops and restaurants, and my 11-minute, seven-mile commute to work. Ah, life is good.

Maryann Haggerty: I also like Richmond -- but guess what, it's a two-plus-hour commute from my job! I still remember standing on one highway overpass or the other at 5 p.m. on a work day and looking down and seeing almost NO traffic! Of course, from where I was standing, you could see the state house, which is a reminder that downstate politicians have lavished major bucks on the Richmond infrastructure while turning their backs on Northern Virginia and Hampton Roads, the two areas that actually produce jobs.

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Washington, D.C.: I'm still reeling from a horrible homebuying experience, which eventually ended with me getting out of the contract. In brief, the seller and listing agent were unresponsive and shady, renovation work substandard and even dangerous, and the closing process revealed one problem after another and culminated in major (preventable) damage done to the house a few days before closing.

The house was off-market for a several weeks and recently re-listed again for $50,000 above the original list-price (and $25,000 above what we planned on paying) with a write-up that indicated the house was back on the market after "additional renovations." Curiosity led us to attend a recent open house, and little of the damage was really corrected. The house is in far worse shape than when we originally contracted on it.

We really don't want to see another person go through the experience we did with this seller and agent, especially for a jacked-up price. Do you have any recommendations for actions we could take that might save someone else some grief?

Maryann Haggerty: Not really. You'd be in some trouble if you stood outside during open houses with a sign that said, "Liars!," right? These "bad" properties do become known within the real estate agent community; a good buyer's agent will steer clients away. But if a homebuyer is so desperate to buy a roof that she waives all her consumer protections -- things like inspection contingencies -- well, it's tough to protect people from themselves.

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Vienna, Va.: Please tell me what I should be extra careful of when selling a house on my own, (i.e., for sale by owner)? Would it be worth it to pay to get on MLS? Is it mandatory to pay commission to the buyer's agent? If so, what percentage? Any advices on for-sale-by-owner would be appreciated.

Maryann Haggerty: Read some books on this, please. There are plenty of them. If you go into the process knowing as little as I'm guessing you do, you might as well just invest in a kick-me sign.

Specifically: The MLS is the most comprehensive way for buyers to find you -- at least, buyers who work with agents. If an agent brings you a buyer, you will in all likelihood have to pay 3 percent commission.

If, though some fluke, you put a sign out in your front yard and a buyer without an agent shows up with a checkbook -- well, you've avoided all those costs. But at least -- please please please -- get a good lawyer involved in the transaction.

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Herndon, Va.: An hour from Dulles to Arlington? I commute every day from Herndon to Rosslyn, and it never takes more than 30 minutes. Of course, I leave home at 5:45 a.m.

Maryann Haggerty: You leave home at 5:45. am.

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Mount Airy, Md.: Can you comment on 1031 exchanges for the novice? Tenant in Common or NNN leases in conjunction with a 1031 might offer improved yield and simplicity. Also, is it hard to place such an investment over into your IRA and what pros and cons are associated with that?

Maryann Haggerty: Ahh, once again I get to quote Bob Bruss: "Please consult you tax and financial advisers."

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To McLean: You need to talk to a lender or mortgage broker. Unless you have a ton of debt, $120,000 for a down payment and an income of $160,000 will get you into something well above a starter box.

Maryann Haggerty: Good point.

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Anonymous: ..."400 high-end condos"

How about someone build 400 low-end condos that some of us real middle-class working folks can afford? You know, the basic ones that let you live your life in a place of your own with a kitchen, one or two bedrooms and the very basics of everything? The type that sell under $200,000? That would be a nice dream.

You know, places for the under $150,000 a year people this area has priced out, and the governments don't care about.

Maryann Haggerty: Nice idea, but who's going to subsidize them? That's the real problem. We live in a system where development is spurred by the profit motive. And if you think that there's a profit in the plain-vanilla-condo business, maybe you want to become a developer yourself. That may sound cold -- it IS cold -- but people have been known to do it.

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Arlington, Va.: Hope I'm not too late. I have a bone to pick with a lot of the posters on this chat. Prince George's County is NOT affordable. It seems like Prince George's County is often mentioned when people complain about having to live far away to afford a single family home.

My wife and I make about $80,000 and are increasingly discouraged about buying our first home. We knew nothing about the area and looked at lots of different communities. Sure, if I had $300,000 to spend on a condo in Arlington, I might choose to buy a bungalow in Hyattsville or Mount Rainier. But I don't have $300,000 to spend on house/condo/whatever. $300,000 is not affordable!

The newer suburban parts of the county are just as bad as suburban Virginia. No, thanks, I can't spend $900,000 on a new house with granite countertops. I'm not moving to Pennsylvania, so it looks like I'll stay in my apartment for awhile.

Maryann Haggerty: "Affordable" is obviously a relative concept. But a $300,000 house will involve a mortgage payment of about $1,800 a month -- less if you have a good-sized down payment. Many people pay more than that for an apartment each month. And guess what? At $80,000 a year, you probably CAN afford that. (My quick back-of-the-envelope calculation shows that one-quarter of your gross income is $1,667 per month.) As one poster said a few minutes ago, maybe you want to talk to a banker. It's not about the big up-front price tag. It's about monthly costs.

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RE: 401(k): Using your 401(k) money for a down payment on a house is a horrible idea. Not only are there penalties if you do not pay it back in a certain amount of time, you lose all the compound interest you would be making during that time, as well as the contributions you WOULD be adding if you did not have to pay on the original loan (neither of which you can play catch-up).

I say, if you cannot afford to pay the down payment by other means, then you just can't afford it, period.

Maryann Haggerty: Thanks. That's what I tried to say, but I was typing much more quickly.

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Springfield, Va.: I am trying to start investing in real estate. I have a townhouse with a low rate and over $200,000 in equity. Is it wise to get a home equity line since the rates are still down and use it to buy my next piece of property?

Maryann Haggerty: Do the numbers work on the property you want to buy? Can you make the payments? Is that your cheapest source of money? If things go less-than-perfectly, can you STILL make the payments and not lose your primary residence?

It's all about math, I'm afraid.

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Washington, D.C.: Hi, I love your chat. I want to ask you a question I've never seen being asked before. How important is a green card in today's loan approval decision? I've been in the United States for nearly a decade, my green card application is pending approval.

In the past, I didn't have problem getting a good loan for my current residence and several refinance afterwards. But for I'm going to move to a new house, and the loan officer asked for my green card. Do you know big difference a green card will make? (I assume higher rate and maybe tougher terms for people without green card.) Thanks.

Maryann Haggerty: There are lenders -- some big respectable ones -- who will increasingly lend on a Taxpayer Identification Number only. And if you have a green card application pending (don't quote me on this, I'm not an immigration specialist) then you're legal, right? Shop around.

Even if you're not Hispanic, many of these loans are aimed at the Hispanic market, so you may want to check with a nonprofit that concentrates on that market to find out more details.

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Rockville, Md.: My neighbor has a large gum tree in his yard and portions of it hang over my house. I recently had some trees removed my my yard and the contractor noted I should have those branches that hang over my house trimmed back.

How should I go about getting my neighbor to trim his tree? Who's responsible if those branches fall and damage my property?

Maryann Haggerty: Branches on your side of the line are your responsibility. You get to trim them.

If the tree is a real danger -- i.e., it looks like it's going to fall -- then you should notify your neighbor of the problem. But if a branch drops, and you haven't trimmed it -- that's not his problem.

Also, in terms of real life, just talk, please, OK? He's your neighbor, not your enemy.

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Maryann Haggerty: Thanks, folks. I have to run -- there's a meeting to get to.

Tomorrow's Real Estate section features a cool story on how to choose materials for an environmentally sensitive kitchen renovation. Of course, there's all the usual good consumer advice. So pick up a copy, OK? It looks prettier on paper, and makes for a nice way to relax with your Saturday morning coffee, wherever you may have that coffee!

Have a nice weekend...

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