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: Greetings, all. It's supposed to be the middle of winter, but it sure feels like spring outside -- and if you're talking about real estate, that means thoughts of the "spring market" should come to mind. What's going to happen? We sure don't know, but we'll keep watching. Meanwhile, let's share your questions and observations.

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Washington, D.C.: I've had my downtown house in Shaw on the market since Thanksgiving and there's been some interest but nothing solid. Should I expect an uptick in activity after the Superbowl when realtors supposedly say the spring buying season really begins? I think the house is priced in accordance with previous sales and current homes on the market.

Maryann Haggerty: Yes, the conventional wisdom among agents is that the spring market begins after the super bowl (Feb. 5 this year). I've always thought that's a bit glib -- it really does take some weeks after that for buyer interest to ramp up.

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Ocean City, Md.: I'm wondering if you can give me advice for a first-time home buyer. I am 26 and my husband and I are saving every penny we can to buy our first home in the next couple of years (we currently rent). We live in Worcester County, but are looking to buy in southern Maryland. Housing prices have increased astronomically in the past few years and buying a home is slowly slipping out of our reach. Many couples my age are buying trailer homes, townhomes, co/op's (where they buy the house but not the land), or they simply rent. Most housing experts say that housing costs should not consume more than 25 percent to 30 percent of your monthly income and if that is the case, my husband and I would have to triple or quadruple our income to afford even a small house in a decent neighborhood. What can we do?

Maryann Haggerty: This is the most painful question of all. All you can do is save, and search. With luck, your income will improve over time. With luck, governments around the country will begin to realize that perhaps we need some sort of answers to these questions. I don't have the solution.

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Washington, D.C.: I am looking at a new home community, in its first phase. Am I near-guaranteed that in the other phases the homes will sell for more and I will have instant equity? Are there any occasions that you know where they have sold for less? Would it be unwise to purchase at this time, seeing that it will take over twelve months to complete and I don't know where interest rates will be by then? (Note: I am a single male, who pays cheap rent in D.C.)

Maryann Haggerty: No, there are no guarantees. Yes, there are times they have sold for less, even though builders do try hard not to let this happen. And only you can decide where your life will be 12 months form now, and whether you want to buy.

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San Diego, Calif.: Maryann: Can you provide an update on the Metro expansion? Or a website that maps out future lines/stops?

Maryann Haggerty: This is the link to Metro's official site on the Dulles project:

Dulles Corridor Metrorail Project

How official & real correspond, I don't know.

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Alexandria, Va.: Hi Maryann,
My husband and I were looking at the South Riding, Va. community as a possible place to live. The transportation system doesn't seem to be adequate, though -- it looks like I would have to drive or slug it from South Riding to Chinatown. A one and a half to two hour commute each way is a deal-killer, in my opinion. Do you think metro or the Virginia rail would ever have lines out in that direction? Also, has the Washington Post ever done a "Where We Live" article on Burke Centre? Seems like a great community to live in. Thanks!

Maryann Haggerty: It's going to be a long, long time before Metro or VRE goes anywhere close.

...And I can't remember any Where We Lives on Burke Centre, so thanks for the suggestion.

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Anonymous: Mayann: I am going through a broker who says the lender of choice will "for free" do the bi-weekly payments. I can afford to make 26 bi-weekly payments per year versus the normal 12. With that taken out of the equation, is there any downside to a bi-weekly mortgage payment? (P.S. the bank will apply the payment ASAP and not wait until end of month payment to apply.) Thanks.

Maryann Haggerty: Look closely and make sure that payment plan really is "for free." No upfront charges? No $4 a month nuisance charges? Then, consider your own cash flow issues. Any problem with making those payments? If you like the answers to those questions, you may want to consider it, because it really is great discipline. Yes, I know, if you simply send in a 13th payment every December, have it applied to principal, the result is pretty much exactly the same. But I personally have seldom had the discipline to write that 13th check.

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Solomons, Md.: My husband and I are looking to buy a house in the Alexandria-area due to work/commuting issues. We want to keep our current house, but I am wondering about the tax consequences. We just got our Maryland tax assessment, and the increase is capped because it is our primary residence. If we buy in Virginia, we will be splitting our time between the two places evenly, I hope. Where can I find guidelines about what is/is not a primary residence for tax purposes in Maryland and Virginia? Can my primary residence be in a different place than my husband's? I know this must be a complicated issue, so I'm looking for a place to start researching and/or getting some good advice. Thanks!

Maryann Haggerty: I would start with a call to a tax accountant. I don't feel competent personally to walk you through this one.

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Ashburn,Va.: I bought a home in Ashburn, Va. in 2005 for 580k. We work hard and finally we are just planning to live on the home equity hoping that we can make some money out of it, but as the market is getting bad and prices are going down we are scared of what we should be doing. Sell it, or Keep it. Is there any hope of market getting better in next three to five years? Also, how would I be benefited by the the tax exemption on interest paid? Thanks in advance for your suggestions.

Maryann Haggerty: A house is NOT a short-term investment. It is a place you live, and if you get lucky, you make money in the long-run. Even in the best of circumstances, you aren't going to make money selling after a year -- selling costs and taxes will likely eat that all up. So fercrissake, don't panic and sell! Live. Enjoy. Housing markets are historically cyclical. No one knows what will happen in three to five years to housing values.

As far as interest paid: Interest paid month to month on the mortgage on your residence is deductible. So is interest paid at closing (ie, points), in the year it was paid. This is pretty simple, but there is some fine print. I'm going to try to find a link to my columnist Benny Kass's piece from a week or so ago, which lays out the rules. you can also find more on the IRS web site. (And any decent piece of tax prep software or a half-competent tax preparer can quickly explain it to you, too.)

washingtonpost.com: Benny Kass's article on deducting interest

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Washington, D.C.: I recently purchased a home in D.C. and have a ton of equity. I need to do some renovations (kitchen, bathrooms and electrical). I already have a 30-year fixed interest rate of 6.3 percent, so refinancing is not going to happen anytime soon. I can't decide if a home equity line of credit, or a Home Equity Loan is best. I know that the major difference is the variable versus fixed interest rate, but aren't the closing costs different too? Are there any special home improvement loans? Thanks, Maryann!

Maryann Haggerty: Yes, closing costs are different, too. They're likely to be little-to-none in the home equity line of credit. The home equity loan is basically a second mortgage, and you are likely to be able to roll any closing costs into the principal. You gotta do the math.

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Vienna, Va.: How are the costs for building materials now and in the foreseeable future? Builders have been giving us high estimates, citing increased material shortage and high costs. We wanted a house built with an insulated concrete form, but the price of cement was sky high. We then considered a stick-built home. But lumber prices and other materials, such as drywalls, have also been sky high. Of course, labor costs also have been quite high. When might material costs be stabilized or reduced? When will builders be affected by a slowdown in the housing market, which seems to be well on its way in the D.C. metro area? Thanks.

Maryann Haggerty: Building material costs have soared over the last year -- up 20 or 25 percent. There are lots of factors to blame -- materials shortages and soaring energy costs among them. (You would be surprised at how much energy it requires to make the cement that goes into concrete.) And these things are affected by factors far, far outside the Beltway -- as long as an unprecedented building boom continues in China, don't expect that a leveling in construction in Fairfax will result in lower material costs.

As far as labor costs -- the other day, the Wall Street Journal ran a story saying some remodeling contractors in some parts of the country are cutting their estimates because of business slowdowns. But guess what? I'm really still not seeing that here. I mean, first contractors have to be willing to return phone calls asking for estimates, right?

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Washington, D.C.: I have experienced trouble selling my one-bedroom condo in Columbia Heights. I have it priced well below other units in the building that sold for thousands more about six months ago. Still, mine won't sell. Is there a glut of condos on the D.C. market?

Maryann Haggerty: Yes, there does seem to be a bit of a glut right now -- a lot of units are on the market. You may have to be patient. Perhaps you want to discuss with your agent (if you have one) how to make your unit stand out amid the competition.

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Washington, D.C.: I bought a house six months ago in D.C. I am currently sharing it with another person on a rental basis. The deal is that he will pay all utilities, so I changed the bills to his name. If I want to sell the house after two years how can I prove that I was living in it so that I avoid paying the taxes?

Maryann Haggerty: There are many, many other documents that help establish that a home is your primary residence. Make sure that's the address on your driver's license, auto registration and voter's registration. Those three are probably a lot better proof than a utility bill. Also make sure it's the address where your bank and credit card bill you.

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Anonymous: We have some savings; should we invest in real estates now or wait until the market goes down?

Maryann Haggerty: You have to look at the individual investment that you are considering. But the old stock market wisdom applies to real estate, too: Buy low, sell high.

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Phoenix, Ariz.: Maryann, Which state is better to live in? Virginia or Maryland. My husband is getting transferred to Andrew's Air Force Base and we are interested in purchasing a home. There are only the two of us. The cost of housing seems extremely high in comparison to Phoenix. We are used to a commute time of 60 minutes. Would D.C. be an option as well? Where do you recommend living? Please advise. Thank You!

Maryann Haggerty: Ah, the Virginia-Maryland-D.C. question! There is no clear winner -- all three have their partisans. You can get into long, long discussions here about the topic. If you're working at Andrews, Maryland may be more convenient. (Especially while construction on the Wilson Bridge continues.) And the more affordable parts of Maryland will be the most convenient, actually. But if you're a city person, you may love DC, which is a shortish hop down the Suitland Parkway.

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Arlington, Va.: Ms. Haggerty,
My husband and I are trying to buy a condo in south Arlington, but are having trouble really figuring out what we can afford. I know lenders base what you can "afford" on your gross income, but -- let's be honest -- many people take home nearly 40 percent less than that given retirement and taxes. Aside from making a budget and charting regular expenditures, is there any baseline recommendation for what percentage a reasonable mortgage should be of "take home" salary?

Maryann Haggerty: You have the first steps: Making a budget and charting regular expenses. You may be able to pay all your other expenses on top of 40 percent of your take-home pay, or you may not be able to. But those lender guidelines on ratios -- FHA allows up to 29% of your gross for housing expenses, and up to 41 percent for all debt -- have stood a lot of people in good stead for a long time.

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Washington, D.C.: My impression is that condo prices have started to fall in D.C. Is there any evidence to back this up?

Maryann Haggerty: The numbers from MRIS (the multiple listing service) actually show that median prices continue to go up, in the D.C. condo market and in most of the region. Those same numbers also show inventory of property for sale way, way up. That should affect prices, but...

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Washington, D.C.: Is there a way to find the transcript of your chat last week?

washingtonpost.com: Maryann's chat from last week

Maryann Haggerty: thanks, web experts!

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Virginia Square, Va.: My landlord just bought our apartment for $625,000. He rents it out to us for $2200. Condo fees in the building are $600 and I estimate that he must have at least another $200 a month in other taxes and expenses. That means that our net rent is only $1400 a month. If he had a 5.5 percent 20 percent down 30-year mortgage, he would be paying an extra $1500 a month out of his own pocket. I suspect that he is using an interest only ARM. This would mean that his cash flow is still negative, only to a slightly lesser degree. It also means that his payments are about to go up, and he will probably soon be dipping into his pocket to the tune of $2-3k or worse.

If he has negative equity in the condo, how long would you expect he'll keep doing this?

Do you think it's possible that he will default? If so, would the mortgage company respond by increasing interest rates and down payment requirements? Would this then cause more ARMs to default and lessen the pool of potential buyers. Honestly, I think we are in a really bad position here; I know a lot of people expect a small fall, but I see a small fall, triggering a cycle where higher interest rates lead to more defaults which lead to higher interest rates, etc.

Sorry for the long tangent, but what do you think people like my landlord will do if prices start dropping and interest rates start rising?

Maryann Haggerty: I think they'll try to sell, or try to ride it out. If those don't work, then yes, foreclosure is an option. And if that scenario is repeated often enough, it could get messy.

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Washington, D.C.: Any thoughts on part-time Realtors.

Maryann Haggerty: I'm sure there are some very professional and successful part-timers out there. That said, it is almost an iron-clad rule that a full-timer is going to better be able to represent your interests. After all, the part-timer has another job to attend to.

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Herndon, Va.: Dear Maryann,
No question from me, but a recommendation. After not being able to find anything livable in Northern Virginia. for under $250K, I have recently moved into a new (not refurbished) one-bedroom condo on the Reston/Herndon border for only $227K. It was a steal!

Maryann Haggerty: Well, it sounds to me like you DID find something under $250k in Northern Virginia. Congrats!

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Washington, D.C.: Are homes staying on the market longer than they were last year? A friend said it took her a long time to sell her Georgetown condo. And are there still crazy bidding wars?

Maryann Haggerty: Time-on-market stats seem to be showing that, yes, on average, homes are remaining on the market a bit longer. We're certainly hearing less about frenzied bidding wars, but that doesn't mean they have gone away completely -- if there's a desirable, well-priced home in a submarket and price class without a lot of excessive inventory, yes, there can still be multiple bids, real estate agents have been telling our reporters.

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Fairfax, Va.: I've read on the Internet that our housing market will drop 20 percent by the end of this year. Do you think this can be true? Thanks for your advice.

Maryann Haggerty: 20 percent is a very, very steep drop, if what you mean is prices. If what you mean is sales volume, well, I guess that's less preposterous. And, of course, you can read ANYTHING on the Internet.

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Oxon Hill, Md.: My parents own a house in Mechanicsville, in St. Mary's County. They are about to retire and are thinking of moving. Their house appears to have appreciated almost 60 percent in the last four years, though prices are still much lower than in the inner suburbs of the D.C. metropolitan area. Do you expect that appreciation will level off uniformly across the D.C. area, or will appreciation rates over the next five years be higher in the more affordable areas since demand will be more steady?

Maryann Haggerty: Barring unpredictable events, past experience has been that areas that experienced more moderate climbs also experienced more moderate (if any) corrections.

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Washington, D.C.: I have lived in an emerging neighborhood for over three years -- Petworth in Northwest D.C. I see drastic change occurring around me. How does the real estate professional population view this area of the District; i.e. still emerging, undervalued, overvalued, etc.

Maryann Haggerty: As you've found, it can take a long time for a neighborhood to "emerge." What happens to yours depends on what happens to the city, whether people continue to see it over the long term as an attractive place to live.

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Centreville, Va.: Hello Maryann, Unfortunately my wife and I bought in the spring of 2005 when the market was insane! I believe that we overpaid for our townhouse in Centreville. It is only two bedrooms, but by the time we go to sell it it will be very beautiful. We paid $375K for our townhome built in 1990. Is there any chance that in the next three to four years the market will encourage someone to buy this kind of property for over $400K. Because sometimes I think that I should just get rid of it now and rent something cheap and save money because ultimately that way I will have more money in my savings account. Did I mention that I am one of those people that used the infamous interest only loans fixed for five years? Help!

Maryann Haggerty: Calm down, folks, calm down!!! Live in your house and enjoy it. Do NOT panic sell, especially after holding a property for such a short term. The real estate commissions alone could kill you!

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Forestville, Md. I recently got married, and we have begun to clean up our credit. Because we are aggressively paying down our debt, the dings on our credit will be cleared in about six months. We are looking to purchase a condo (hopefully) at the end of the year. Fortunately, it is a new development which will break ground this year, but will not be delivered until 2007. Because we have been fixing our credit, we do not have a lot of money in the bank. What do you think about interest only mortgages? Is it possible to get one and still pay on the principle so it would not hurt as much down the road? Also, would we be eligible for a low interest rate because we cleared up our credit rating?

Maryann Haggerty: I think interest-only mortgages could be perilous in your situation. Face it, you will be stretched. You will already have a big mortgage because you have a small down payment. And you face the possibility of higher payments, soon.

As you clean up your credit, the interest rates that lenders offer you will indeed fall. That's pretty much the point of the whole credit exercise. However, it can take some time. Check out the web site http://www.myfico.com/  for a very graphic demonstration of the differences in loans available, and also for free info on how to get your own credit score. (Also, these days everyone is entitled to free credit reports form the major credit reporting agencies. My colleague Michelle Singletary has written a lot about this.)

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Washington, D.C.: Hi Maryann! My fiancé and I are going to start the homebuying process soon. We both grew up in Bethesda and are interested in moving back there -- although home prices have soared. Do you think it would be a better investment to purchase a home in Bethesda that's small and needs a lot of work, or a bigger home in Kensington or a community farther out that is perhaps nicer?

Maryann Haggerty: Look to your own life style and desires. How will a longer commute affect you? Are there neighborhoods in Bethesda you like and can afford, even if the house is smaller? I mean, are you a person who has and needs lots of stuff, or one that is happier with a more modest house? Do you look forward to home fix-up projects, or does the thought give you a migraine?

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Washington, D.C.: I'm looking into buying a home from my mother and father. It's their investment home. They currently own the home out-right; they just pay taxes on the property. I currently rent it below market value and they will sell it below market to me. But I feel that I need to create a similar investment/financially-wise situation for them or feel I should just advise them to keep and charge me more rent. Please advise.

Maryann Haggerty: Your parents are very generous. Maybe this offer is their way of giving you a bit of your inheritance early. Have they consulted with their own accountants/estate lawyers?

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Washington, D.C.: Why are you so skeptical about the possibility of prices falling dramatically? Stranger things have happened, right? Who would have thought prices would go up so fast in the last five years? It seemed like every year we were reading about how the market couldn't possibly get any hotter, and then it did. Also, how is real estate different from the dot-com bubble?

Maryann Haggerty: Why am I skeptical? Because I tend to moderation in most things. I never believed that the market would grow to the sky forever. I also don't believe it will crash as precipitously as some people seem to believe. (I have a new and growing stack of books on my desk about how the apocalypse is nigh, real-estate-wise.) History tells us that these things are generally cycles, and I have seen these cycles work through before. Yes, the Japanese experience was different, but our economies aren't the same.

Of course, I always admit I could be dead wrong.

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Anonymous: We bought our house in 2004. We are buying a new house. We decided to keep the old one and sell the new one. If we do make some money selling the new house, could we put into the old house with no taxes penalties?

Maryann Haggerty: No, no, no. The capital gains exclusion (i.e. the tax-free money) applies only to principal residences owned and lived in for 24 of the previous 60 months. It sounds as if your "new" house is an investment property pure and simple. the tax code generally does not allow you to mix investment and residence treatments.

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Purcellville, Va.: Just a comment on quoting median price statistics: New houses going up in Loudoun County are mostly McMansions and they tend to raise the median price regardless of whether or not home values are really going up.

Maryann Haggerty: Yes, that's exactly what median prices do. It's the nature of statistics.

For that reason, I rather like the OFHEO series of same-house sale prices. But I can't tell you what those numbers show for December, because there is a significant lag in reporting them. And I can't tell you at the precision level of, say a county -- let alone D.C. condo sales!

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Washington, D.C.: Hi Maryann,
To the person who asked about investing in real estate: I think you should be clear about what you mean by "investing." If investing means finding a good home to live in and enjoy, or to use as a rental property, for the long-term that will be worth more when you sell than what you bought it for, buying real estate might be a good move. But if you're looking to make real estate another fungible asset in your investment portfolio that will appreciate at a rate as high or higher than a decent index fund, you need to be careful. It's pretty clear that the days of 20 percent/year appreciation are long gone -- at least for the Washington area. Most experts are predicting at best appreciation rates approaching historic norms. Bottom line: Right now real estate is a better bet as a long-term investment than as a short-term one. You shouldn't buy something now counting on being able to flip it five years from now for twice what you paid.

Maryann Haggerty: Thanks for the comment. I was reading "investing" as option B in that question.

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College Park, Md.: Are Kaine's initiatives on giving localities the ability to say no to builders going to drive up home prices even further by reducing supply?

Maryann Haggerty: I'm in the middle of reading some studies that examine this regulation-is-choking-supply argument -- obviously a big favorite among builders -- and don't know the answer

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Kensington, Md.: Has Washington, D.C. been to Kensington or "farther out" lately? There is nothing cheaper there -- smaller perhaps but certainly not cheaper.

Maryann Haggerty: well, there are pockets that are cheaper than in Bethesda, if that's the question you're referring too.

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Sterling, Va.: Hi Maryann,
I bought a condo two years ago on a 5/1 adjustable rate mortgage and I am thinking about selling. I never planned on staying in it past five years. Should I wait a year or two before I sell or should I sell it now?

Maryann Haggerty: If you have your two years as pricipal residence (to avoid capital gains tax), then determine whether selling now fits your lifestyle choices and financial needs. No crystal ball, remember?

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Washington, D.C.: Is it true that developers have plans to double the number of condos in the greater Washington area in the next three years?

Maryann Haggerty: It's not double the existing base, but it's a whole heck of a lot. Oh, web wizard: can you find the link real quick to Kirstin Downey's Jan. 7 story on condo construction projections?

washingtonpost.com: Area Condo Sales Cooling After Record-Setting Year (Post, Jan. 7)

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Topeka, Kan.: Another issue beyond the financial in terms of owning multiple homes is the time and stress of ownership. I realize how time-consuming it is to keep up my primary residence and shudder at the thought of owning another one. Of course I could pay someone to maintain it for me, but you would then have to be prepared for significant expenses.

Maryann Haggerty: yup.

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Arlington, Va.: I know you can't predict the future, but with signs the boom is waning, do you think there's any chance of prices going down? We rent a single family home in Arlington for $1600/mo, but can't seem to afford to buy anything comparable. Is there anywhere in the D.C. metro area where a single family home or non-condo townhouse sells for $300k or so? We both work in Fairfax County, so we would prefer that side of the Beltway, but we may be willing to sacrifice -- at this point, we're even considering ditching D.C. for another area of the country.

Maryann Haggerty: Some of the crazier prices may go down. Or not. (See all of the above!) But what you DO have now is the luxury of time. Shop around and see if there's anything reasonable out there.

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Maryann Haggerty: Folks, I have to go. There are many meetings left today. As always, I've enjoyed it. (And I'll share a secret: I really DO wish I had a a crystal ball!)

I invite you to read tomorrow's Real Estate section. There's a very interesting take on two very different visions of how to house America, and what home buyers here want. In addition, we also have our usual star-studded lineup of useful consumer advice columnists...

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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.