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.

The transcript follows.

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Maryann Haggerty: Hello, folks. Glad to have you here. I hope your holidays were restful and you had a chance to enjoy home and family. And now, on to a new year!

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Edgewater, Md.: Could you clarify for me a point about the often discussed tax exemption received on profit realized when selling one's primary residence. If part of the profit received from the sale of your home is not rolled into the purchase of your next home (down payments, closing costs, commissions, etc.), then is that portion taxed? Say if you want to use part of the proceeds to pay off a car? Thank you.

Maryann Haggerty: You are mixing up stuff from the old tax code and the current code. Under current law you DO NOT need to roll a cent of your profit into another dwelling. It's yours, federal-tax-free, within the limits. ($250,000 or $500,000 for joint filers must have owned AND occupied as a principal residence for 24 of previous 60 months.) If you want, you can use that money to pay off your car -- or travel around the world, or buy new shoes. The government doesn't care.

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McLean, Va.: Hi Maryann,

Happy New Year!

What do you think of the prospect of the retirement community properties? Will their price go down or be flat as the rest of the region's real estate? Or are there some different dynamics there?

Thanks.

Maryann Haggerty: The inevitable forces of demographics ... this nation is getting much older as the baby boomers age. Would argue in favor of the success of retirement-type communities, as long as they are proper markets and maintained in a way that makes them attractive to retirees. But if a particular project turns into a poorly maintained mess inhabited only by the very old (as happened in some Florida retirement communities) then it is unlikely to attract newer retirees.

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Clifton, Va.: Many of my co-workers, etc., keep hoping for the vaunted real estate crash. They think prices will drop dramatically excuse me they never have in past in this area. 10 to 25 percent in the past. But prices aren't going to drop 50 percent or 100 percent you not going to be able to pick up that million dollar house for $300,000. With a predicted for five dollar growth rate for the economy here prices will moderate. Back in the 90s prices, stagnated and dropped in some places 20 percent because of new developments right next to slightly older developments. But most of the land has been developed In Fairfax and Montgomery counties, etc.

Maryann Haggerty: I think we certainly won't see price drops of 50 or 100 percent, unless something truly horrible happens to the local economy. (Say, the entire federal government picks up and moves overnight to an undisclosed location.) But 10 or 20 percent drops are significant.

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Manassas, Va.: I purchased a condo in 2001 in Manassas for $115,000. They are now selling for $295,000. I'm considering selling because the neighborhood looks like it is declining and I'm afraid I will lose money on the property. Is this a wise decision?

Maryann Haggerty: If you paid $115,000 and they are now selling for $295,000, you won't lose money is you sell. In fact, if prices go down somewhat from $295,000, you still won't be losing money. Maybe you'll be losing some of what could have been a paper profit, but you won't be losing real money. So ask yourself: Do you like where you live? Do you want to live somewhere else? And can you afford to live somewhere else?

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Washington, D.C.: I bought my condo a year ago and now my wife and I will be moving out of the area in May. What are my options with the sale of my place since it is less than the two-year rule?

Maryann Haggerty: If you are moving for a new job, you will qualify for a partial capital gains tax exemption. (If for other reasons, it can get more complex.) Odds are that partial exemption will be plenty big enough for you to avoid all taxes. For details, see IRS publication 523, Selling Your House, at www.irs.gov.

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Northern Va.: When I first started house-hunting a few months ago (during peak prices), I was surprised how hard my real estate agency's mortgage company pushed me to consider highly risky mortgages. Although, I'm well-suited for a fixed rate mortgage. Do you have stats on the number of people in the D.C. area who have taken out ARMs, what percentage of those ARMs are the highest risk, and when will they start coming due? What impact will these risky loans have on D.C.'s housing market when they start to default?

Maryann Haggerty: Please see Kirstin Downey's excellent recent story on ARMs, especially interest-only loans. (We'll post in a second.) It should answer many of your questions. But short answer: Lots and lots of folks took these loans to stretch their buying power. And there could be a time bomb ticking away there.

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washingtonpost.com: Interest-Only: Borrower Beware (Post, Dec. 21)

Maryann Haggerty: Here it goes.

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Washington, D.C.: I understand that up to 30 percent of home loans in the D.C. area in the past year have been high-risk and/or sub-prime loans and the federal government recently instructed banks to be more cautious about making such loans. What impact will this have on the area's housing market in 2006 and beyond?

Maryann Haggerty: See above. If lenders really do tighten up on money, there will be less available to prop up prices.

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Arlington, Va.: I've heard there are certain financial incentives for first-time homebuyers. Can you tell me what they are? Thanks.

Maryann Haggerty: There are loads of them; they vary by jurisdiction. Start with the housing office of the county/city where you want to buy.

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Washington, D.C.: Every week in the Real Estate section of the Post there is an article focusing on one of the local communities. I've been waiting years to see one on my mom's neighborhood. There have been numerous and multiple articles on the neighborhoods around it over the years and although it's one of the largest and oldest of the D.C. area suburban communities I've never seen it discussed. The residents have complained over the years that it is sort of a forgotten corner of Montgomery County. Apparently in regards to The Post, this perception is correct. How are these communities chosen for review?

Maryann Haggerty: We have been running the Where We live feature every week for almost 19 years, but we still haven't gotten to everyone! The neighborhoods are chosen in a rather random fashion ... maybe a writer drives past a place that looks interesting, maybe I say, gee, we haven't done anything in that part of that county lately. Whatever. (I find that simply throwing darts at my local map is inefficient, because we have profiled SO MANY places.) Anyway, have your mom -- or you -- send me an e-mail directly to haggertym@washpost.com. Tell me what neighborhood it is, maybe a little about why it would be interesting, and contact info. for a couple of people. I'll put it in my ideas basket. Sometimes we get to those "ideas" quickly, sometimes not so quickly ...

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Potomac, Md.: I keep hearing how great Takoma Park is for young families. Do you like this area and why? Which neighborhoods/streets there are specifically nice for young families? We can pay up to $750,000. Will that get us a decent house in a good area? Thanks.

Maryann Haggerty: I find Takoma Park a very comfy place, with great housing stock, and indeed know many people who say it's a great place for young families. (Personally, it's not for me, because the very things that make it family-friendly make it kinda, well, dull for me.)

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Maryland : What's going on with the proposed and enacted home occupancy limits in Virginia? Does the government have a right to say who and how many people can occupy a house?

Maryann Haggerty: Actually, it wasn't "Virginia." It was one city, Manassas. According to a story in yesterday's paper, the city has suspended the rule because of the barrage of criticism following The Post's 12/28 story about the rule.

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Alexandria, Va.: I own a three-level townhome in Alexandria. Bought it for $99,000 and was recently offered $410,000. I plan to retire in two to three years from the federal government, is it wise to let it just appreciate. I moved to Maine in Dec., I rented it for $1,500/month from Jan. 06 to Jul. 06. I do not need the cash, my mortgage is only $580/month. I think It will eventually sell for close to $600,000.

Maryann Haggerty: It sounds like you're in a great position to let that house bring in cash and appreciate for a few more years.

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Woodbridge, Va.: I've heard that the housing market typically picks up in January and February (although not as much in the summer months). Do you think that'll hold true for this year?

Also, I heard a report that mortgage rates went down a bit this month (around 6.2 percent). Do you see that trend continuing?

Maryann Haggerty: The market usually picks up in spring. Spring begins sometime in February or March.

As far as interest rates: Yes, they did tick down nationally the last few weeks for 30-year loans. This is all part of the weirdness currently going on in the bond market. Did you all notice the day that we had an inverted yield curve? And no, I'm not going to explain in depth what an inverted yield curve is, because we all want to stay awake here. But basically, it means short-term rates are higher than long-term rates, and it's not a good thing.

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Potomac, Md.: We live in Potomac in a spacious, tri-level, contemporary four-bedroom home. But we are very anxious to sell the house and move to a neighborhood closer in to D.C. and where we can find more young families like us. What's the best month to put our house on the market? Is February too early? Do we need to wait until spring?

Maryann Haggerty: Many agents say the spring market starts after the Super Bowl (which is Feb. 5 this year.) So mid to late February probably isn't too early

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D.C.: Besides longer days on the market and reduced prices, what are other -- perhaps less obvious -- indicators of a bursting housing bubble?

Maryann Haggerty: Well, let's start with this one: Do NOT expect the sky to fall.

But seriously: The return of sensible contracts (i.e., with inspection and financing clauses.) The return of houses being fixed up to look their best for sale. (None of that stuff where the seller doesn't even bother to straighten the kitchen before the open house.) And -- a very visible one -- the return of agents and builders saying "Now is the time to buy!"

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Alexandria, Va.: How much value do you think it would add to nicely finish a smallish (size of a two-car garage) basement? Our house is built on a slope, so we drive into our garage, enter the adjoining basement, and then walk upstairs to the kitchen/family room area. I've always wanted to make that basement area look nicer (right now, you walk-in and see the laundry area across the room), but wonder if there's much economic return on finished basements.

Maryann Haggerty: According to the latest edition of Remodeling magazine's cost vs. value report, which I just happen to have on my desk, in the Washington market you should recoup 118 percent of what you spend on a basic basement finishing. (vs. 90 percent on the national average). Now, there are always quibbles about the methodology of this report, but you can atleast take it as guidance for what direction to go in. And what it's indicating is that you'll probably do OK. And you want it to make your own life better, right?

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Mc Lean, Va.: Thank you for taking my question. I live in a townhouse development about a mile from Tyson's. With the new Metro and development over the next five or so years, how will my property value be affected? Will it be higher after construction is finished or will values be on the rise even during construction? The train will be coming out of the ground nearly in my backyard!

Maryann Haggerty: Metro has been an incredible driver of values around the region. And you won't have to wait for the trains to actually run to see the effect.

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Clinton, Md.: I just bought two investment properties in Suitland and Temple Hills. The problem is that I'm having a hard time getting any tenants. Did I enter the market at the wrong time? Is this the wrong season to look for tenants?

Maryann Haggerty: Well, December isn't the busiest time of year for rentals. (It's not the busiest time for anything but the holidays.) But there are renters in the market year-round. You need to make sure that you are marketing your places aggressively and that you are priced correctly in comparison with your competition.

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Rockville, Md.: I was lucky enough to buy a small condo just before prices went entirely out of this world. However, now for three years, my assessments and taxes have risen -- and will continue to. I am very concerned. Do you have other folks who are worried about this? I don't think I can stay in my condo forever if it keeps having tax increases like these and where in the world would I go?

Maryann Haggerty: Increasing taxes are the flip side of increasing real estate values. And yes, they do worry people -- every year, about this time, when the assessment notices come out. In Maryland (as in D.C.) the actual increase in the tax bill is capped, while the assessment isn't. That takes away some of the sting. Still, yes, you do need to budget for that increased payment. Sorry.

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Montgomery County, Md.: Speaking of taxes ... I bought my house in Montgomery County in May 2004, but the county is claiming that I haven't lived the full one-year in my home to qualify for Homestead tax credits for '05 that prevent property tax from going up more than 10 percent in a year. The title company didn't submit my title until 13 days after the supposed June 30 cut off for the credit. 45 days for a cut and dry title?!? All of my paperwork says that I owned the house since the end of May 2004. What should I do? The title company claims no wrong doing, and Montgomery County claims that the date the title is recorded by the county is the date they use. As a result my mortgage is scheduled to go up an extra $300 a month. And this is a fixed rate mortgage. Advice?

Maryann Haggerty: If the county is following what the law says, and the title company is following what the law says, you may be stuck. But maybe call a lawyer and chat a little?

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Takoma Park, Md.: Boyfriend and I have a one bedroom condo that we're very happy with, but I worry about our vulnerability to a cooling market. It's gone up enough in the year and a half since we bought it, for us to afford a down payment on a modest house in the area. Do you think it would be a smart move financially to sell once we can keep the gains tax-free, and trade up to a house? I don't relish moving or yard work, but it seems like a much safer investment. (And yeah, the extra room would be nice, and a yard for the dog.)

We are otherwise in good financial shape and plan to stay in the area for a couple more years atleast.

Maryann Haggerty: Well, historically, single-family houses are the more stable investment. But don't panic! If the market is indeed softening, six months from now may be the worst possible time to sell. (Remember: Buy low, sell high. And it's corollary: Don't panic sell into a falling market.) If you like your condo, live in your condo and save your money ...

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Alexandria, Va.: Hi, Maryann. TGIF to both of us!

My husband and I are looking to sell our townhouse this spring and move into a single family home. We bought our townhouse through the builder and consequently we never had to go through real estate agents.

Is the old adage of "interview three agents" still true in your opinion? Do most people use the same agent for buying and selling? I guess I'm just trying to get a feel for how things work with real estate agents, so your opinion on those two questions would help out quite a bit.

Maryann Haggerty: Yes, you want to interview three agents. Pick them from among folks recommended by your friends and from among those who appear to have had success selling in your neighborhood.

Now, do you want to use the same agent for both sides of the transaction? Maybe. As a seller, you want to pick someone who is a good salesperson, probably very familiar with your neighborhood. As a buyer, you want someone who is familiar with the place where you want to buy. You also want someone who understands the kind of place you want. And that may be the same person, or it may not.

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Washington, D.C.: I have recently purchased a home just north of the "pp-and-coming" H Street corridor, N.E. After reviewing numerous city plans, this area seems very promising. Yet others I've talked to say, "Oh, they have been saying that for years now." My question: Do you know enough about this particular area to make a prediction about its stability/revitalization likelihood? And second, for your more national audience, what is the trend nationwide in revitalizing areas of urban blight? Do you see it in general as a good real estate investment? Thank you.

Maryann Haggerty: Yes, they have been saying that for years now. Years and years. But there is some real movement going on, so maybe this time, change is really coming. (Trendy bars on H Street? Well, it has happened in recent weeks.) Or maybe not. Do you have ANY idea how long some people waited for Logan Circle to boom? Decades.

So, keep in mind: Investing has risks, and one of those risks is a time thing. If you buy in the hopes of a rising market, you also take the risk that plans may falter.

As far as investing in areas of urban blight: That is truly a localized thing. There have been surprising neighborhood revivals all over the country. There are also many cities that continue the 60-year-long downward spiral. So it becomes a know-your-neighborhood thing.

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Gaithersburg, Md.: Where exactly are the incomes coming from to support these housing prices? I mean, yes we create jobs, but most of these jobs don't pay $80,000 plus.

There are only so many lawyers, doctors, lobbyist and executives.

Maryann Haggerty: Well, actually, a lot of these jobs do pay very well -- this is one of the nation's wealthiest regions. And it also has one of the nation's highest rates of women in the workforce. That means there are a comparatively high number of wealthy households.

On top of that, of course, many people pared their monthly payments down as much as possible over the last couple years, often with those exotic loans we were talking about earlier.

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Bethesda, Md.: Is there any truth to the idea that even though there may not be a housing bubble, that there is in fact a "condo bubble?" I've also heard that condos appreciate slower than single family homes in a strong market and depreciate faster when the market slows down. Is is wise to buy a condo in the D.C. area at this time?

Maryann Haggerty: Quite possible. Condos are the sector of the market now experiencing the most dramatic swing -- just as they were the focus of so much absurd speculation a year ago. (C'mon, folks -- what were you thinking? Waiting in line overnight to buy a condo that you were just going to flip, just like EVERYONE ELSE who was waiting in that line?)

That said: If you want to live in a condo, then seriously consider it, especially if prices do come down. It is a lifestyle decision. It is not a ticket to immediate wealth.

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D.C.: How long does it typically take for sellers to understand that the market has changed? I still see listings for vacant houses that have been on the market for two to three months without lowering their original asking price and with ridiculous phrases like "Seller reserves the right to accept/reject all offers."

Maryann Haggerty: It takes a long time. More months than we have had. And it takes motivated sellers. Those folks who put their house on the market just to see if they can make a killing aren't going to cut their prices. The ones who need to move because of job transfers, etc., will be the ones to cut.

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Washington, D.C.: My wife and I are finding ourselves priced out of the D.C. market. I've read a lot about D.C. residents moving to Baltimore. We are city people and would rather commute from Baltimore to D.C. then live in the 'burbs. Do you know anything about Baltimore?

Maryann Haggerty: Several of my co-workers do the Baltimore commute, and they say that it's worth it. (Via MARC, NOT via auto!!!) Prices in Charm City are much lower than in D.C. There are nice neighborhoods -- go up and take a look. (In MARC-accessible neighborhoods, prices are higher than elsewhere.) But you gotta get into the zen of the commute. WE have a Baltimore story coming up in the Real Estate section in a month or so. Keep an eye out for it.

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Alexandria, Va.: I guess I was and lucky when I purchased my condo. My mortgage company suggested a fixed rate. I got an inspection on the condo. Now I have a nice place to live with a manageable mortgage. I'll have to start thanking more lucky stars. My advice to my friends is got with company with a good reputation and know how much you can spend, not how much you qualify.

Maryann Haggerty: Just a comment

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Falls Church, Va.: Just wondering why people are saying the housing market is slowing, I put my townhouse for sale in December and had a contract for the asking price two days after it was listed, and closed in less than three weeks. What gives?

Maryann Haggerty: The difference between micro and macro is what gives. Overall, inventory is up and sales times have extended. But, indeed, a well-located, well-priced place will sell, because there is still buyer demand. It has not dried up, just moderated (probably in good part because speculators/investors are sitting things out now.)And there's more demand on the lower end of the price spectrum (i.e., townhouses) than there is at the top end.

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Alexandria, Va.: Is it possible for a house to be too neutral? One of my friends has had her house up for sale during the fall. She has received a fair amount of foot traffic but only one lowball offer. Her own research, the listing agent and a professional assessment during the spring all agree that the price is fair. Everything that could possibly be fixed or polished up has been fixed and polished, with the exception of the family room carpet and the kitchen counters. Those are in reasonably good shape, and she plans to offer an allowance for replacement and let the new owners choose the color and material.

The only thing that I can think of is that the house is in an area that has had a lot of new development in the past 10 or 12 years (Stafford) and a brick-front center hall colonial with an off-white interior just doesn't stick in the memory when a buyer has already seen four similar houses.

In case you are wondering, it is now off the market, and will go back up in the spring when the flowers and buyers come out.

Maryann Haggerty: It's tough, technically, to be TOO neutral. But maybe a little bit of interior staging would help, so buyers remember SOMETHING. Or, better, think about that curb appeal, folks! Really pretty flowers come spring help lots & lots.

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Washington, D.C.: There seems to be a lot of development planned for near S.E. and S.W. Is all of the development off the table if the stadium for the Nationals is not built?

Maryann Haggerty: Nope. Some of it predates the stadium--specifically, the stuff that is more closely tied to Southeast Federal Center, the Navy Yard, and the big Hope VI development that is now replacing the once-huge Capper public housing project. The trick with the stadium is supposed to be that it takes that existing momentum and extends it further south and west.

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N.W., D.C.: RE: Your comment about short-term rates being higher than long-term rates. I have two interest-only loans for a place I bought in August '05. The smaller loan is at a 8.5 percent higher interest rate that recently was negotiated down to 7.25 percent. This is not a fixed rate, so it could go up still and, in my opinion still seems very high. My credit is excellent. Should I shop around for the second loan? My mortgage people won't budge, saying this is the best rate I can find. The bigger loan is OK, in terms of the fixed low rate. Do you have a reputable URL suggestion for me to educate myself on this? Thanks.

Maryann Haggerty: Sure, shop around. And to find out lots and lots and lots about the ins and outs of mortgages, look at the site of HSH Associates, a very reputable research firm. (www.hsh.com)

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Clifton, Va.: Your mortgage payment on a 30-year fixed mortgage is not fixed for the 30-year term unless you pay increases in insurance and taxes in a lump sum. Maybe before you brought your house you should have become an educated consumer!

Maryann Haggerty: You're confusing your terms a bit. Your payment on the principal and interest are, indeed, fixed. That's your mortgage. Your payment on taxes and insurance are NOT fixed. That can increase your monthly housing cost. Many people, but not by any means most, pay their taxes and insurance to the same lender they pay their mortgage. Taxes and insurance are then escrowed to pay those big bills when they come in. But many other people pay taxes and insurance directly.

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Washington, D.C.: I own a rental property in a 50/50 partnership with another investor. How does the capital gains tax work in this situation? If we were to sell, would both of us have to live in the property for two years to avoid the tax? If only one of us lived in it, would only that person be able to take the deduction? Thank you.

Maryann Haggerty: Yes, anyone who takes the exemption must have owned and lived in for two years. (There is a little flex in the ownership definition for married couples, I seem to recall, but again, consult the IRS publication.) If only one lives in it, only one takes the exemption. The other is an investor, and subject to taxes as an investment.

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Centreville, Va.: Thank you for taking my question! I am renting a home from a private owner and I just got a 90 day notice that he will be selling the property and I will need to find a new place by April. My credit has gotten worse since I last looked for a place and is currently good to poor (high credit card amounts but I continue to make on-time payments). How will this affect me looking for a new apartment? Also do you think it is a smarter move (financially) to rent another townhome or rent an apartment? I don't think I can afford a new home and I am trying to stay in Fairfax County for a couple more years.

Maryann Haggerty: Well, weaker credit can indeed cause you problems. To a landlord, the big thing is whether you have made your rent payments, so if indeed you have been a good tenant. It can help to get a letter from your current landlord saying so. But if your credit rating is indeed poor, you may have to pay a larger security deposit than otherwise. And townhouse vs. apartment is more of a lifestyle decision, usually, but I see one possible consideration in your case. If you can save money by living in an apt vs a townhouse, you may want to do so and direct some of the money toward those credit card bills, before they strangle you financially.

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Washington, D.C.: I am selling a house. One of the purchasers has produced a doc-only loan commitment letter. Are there any concerns for me in this transaction?

Maryann Haggerty: Not really. You'll get your money -- but maybe, just maybe, you'll want a bigger escrow deposit, just in case?

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Bowie, Md.: Hi, Ms. Haggerty.

I recently turned 24 and had a baby. I'm interested in buy my first home by next year. What are some tips I can use to save up a substantial amount to put down? How do I go about looking for affordable but nice houses in Montgomery County?

Maryann Haggerty: Saving is particularly difficult during a time when you're facing all the challenges of raising a new baby, but still: Sit down. Determine what you're spending money on, and what's a waste. Make a budget. Follow it. There are big ways to save money (move back in with the parents, sell the car). There are smaller ways, too: Stop eating out. Get rid of all expenses that aren't necessities. (Cable TV, for instance, is a luxury, not a necessity.) Go read Michelle Singletary's stuff for more ideas. And good luck!

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Maryann Haggerty: I'm sorry, I have to leave. There are zillions of great questions I haven't been able to address. Sorry.

Remember to read the Real Estate section tomorrow, for plenty of great consumer advice, plus a fun article on the pluses and minuses of alleys, and also a helpful piece on how to make sure your renovated basement is safe.

Have a great weekend, and a great new year!

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Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.