Real Estate Live

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

Maryann has 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.

Haggerty is joined by Washington Post columnist Elizabeth Razzi. Razzi is the Local Address columnist for The Post's Sunday Real Estate section in Business. She's written about real estate and other personal finance topics for magazines and newspapers since the days of double-digit interest rates. She is also the author of two consumer-advice books, The Fearless Home Buyer (2006) and The Fearless Home Seller (2007).

Today, they'll discuss the local housing market -- from condos and investment properties to contracts and mortgages.

For more on local real estate, visit washingtonpost.com's Real Estate section.

The transcript follows.

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Elizabeth Razzi: Hello, everyone. It's great to have Maryann back! What's everybody thinking about that rate cut by the Fed?

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Maryann Haggerty: Hello, everyone. It's good to be back.

I spent most of the last few weeks in Australia. Turns out that in both Sydney and Melbourne, soaring home prices in recent years and concern over the course of prices in coming years are major conversational topics. So is the concern that young peopel won't be able to afford homes in the future. It all sounded sort of familiar...

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Chevy Chase, Md.: My new husband and I have homes we owned for a long time. We're not prepared to sell either of them yet, and someone suggested we get one mortgage for both homes. Is this even an option? I've never heard of someone bundling mortgages like this before. What might be the drawback to doing this?

Maryann Haggerty: Why would you want to do that? I don't get it.

Elizabeth Razzi: I'm assuming someone is trying to sell you on a great, big line of credit secured by your home equity? My big question is whether you sought the loan--or the lender is soliciting you? I don't like to do business with people who find me first.

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Washington D.C.: I live in a condo in Adams Morgan and our condo board wants to put benches on the front lawn (a small building of just over 24 units). Is there any evidence that adding these sorts of fixtures will improve property value?

Elizabeth Razzi: Hmm. That's kind of like asking if one grain of pepper will change the taste of the soup. It's just too small, by itself, to affect property values. If it's part of an overall spruce-up of the property, sure,it could have an effect. If it gives elderly or disabled folks a spot where they can catch their breath, it can be a very welcome amenity. If it turns into a graffiti-catcher, that's another story.

Maryann Haggerty: Since they won;t cost mor than a couple hundred bucks max, it's not really relevant how much they increase property value. Hoiever, most benches I have seen in front of buildings are part of an overall front-garden design, and they're kind of cute. Impriving the ovrall look of a building DOES, indeed, maintain/increase the value of individual units. (Also, I've seen buildings where those benches provide a place for residents to meet and chat, which is nice.)

Maryann Haggerty: Sorry for all those typos... For some reason, I can't get into fix them. Elizabeth says my typing has gotten rusty!

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Alexandria, Va.: My husband is convinced that one of the best ways to save for our kids education is to buy an investment rental and then use the proceeds from the sell to finance their education. (We're talking 10 years for one and 13 years for the other). He thinks that real estate has hit fairly close to rock bottom and homes will definitely come back to at least their previous highs - if not higher by the time our kids are ready to head to college.

My question (other than the obvious risks with this approach) is, are you seeing investors re-entering the real estate market or are they still waiting for it to get worse. Thanks.

Elizabeth Razzi: The big risk to that investment strategy is its lack of diversity. If that rental investment doesn't do well, what's plan B for the kids' education? With 10-13 years of lead time, you can afford to put at least some of your money in mutual funds that invest in stocks. Over time (and that's the key point)stocks offer good returns. Look into the tax-preferred savings plans, including the option of prepaying tuition expenses, that are offered by the Commonwealth of Virginia. www.virginia529.com.

Elizabeth Razzi: Also, I don't see much of a rush of investors snapping up local real estate.

Maryann Haggerty: However, investment real estate does have a place in a diversified portfolio. So if you've covered all your other bases--cash saved, a sensible mix of investment in the school savings plan, etc., then you can also contemplate real estate investment.

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Arlington, Va.: My husband and I have just started looking for houses in neighborhoods where the cheapest house is about $550,000. He says we should wait at least another year because he thinks the real estate bubble in this area hasn't even come close to popping yet. He's confident that the $550,000 house will be selling for $350,000 a year or two from now. I think he's crazy. How about you?

Elizabeth Razzi: He's expecting property values to decline 36 percent in the next year or two. The D.C. area economy would have to get pretty nasty for that to happen. And he still wants to live here, expecting that?

Maryann Haggerty: Yeah, that's a drop that even Detroit isn't seeing. It's also much bigger than even the most bearish of analysts are calling for.

I continue to believe that timing markets on a micro level is foolish.

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Falls Church, Va.:

Do you have any statistics on the number of homes that are for foreclosure in the D.C. Metropolitan area?

Thanks.

Maryann Haggerty: That's a very broad question. Thre are many different sets of numbers. Some are produced by different vendors; they measure homes at different steps in the process. However, according to one set I have here (from LoanPerformance), 0.13% of the prime loans in the Washington Metro area were in some stage of the foreclosure process as of June. Of subprime loans, 3.66% were in the process. Both numbers are more than double what they were a year earlier.

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Falls Church, Va.:

I have been thinking about becoming a home owner in 2008. I'm thinking about a 2- bedroom Condo in Northern Virginia. I am a single woman in her early 30s. I feel that a condo is a better choice for someone in transition, as I'm thinking about going to graduate school in a year (saved about $15,000 so far for a down payment). Who knows what the future holds-- marriage, kids? But friends and family have said that a condo is a difficult property to sell. What is your advice for a gal like me in transition?

Elizabeth Razzi: A condo can be a tough sell. Then again, it can be a nice place to live. The question is just how uncertain your future is. Might grad school take you out of town in a year or two? Then I'd stick with a rental. If you do choose a condo, a two-bedroom unit would at least give you some flexibility should the marriage and kids thing happen sooner rather than later.

Maryann Haggerty: Historically, condo sales have been tougher in a tough market. However, there are those who argue that soaring prices--and the base level of housing in this area has soared, make no mistake about that--will push first-time buyers into the condo market in the future, just as they are pushing you there now.

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Arlington, Va.: Getting ready to sign next week on our first house. Any advice for being something other than a signing zombie? I want to be proactive about it. Thanks.

Elizabeth Razzi: Good for you! My best advice is to take your time with all those stacks of paper. Whenever anyone puts two-sided, small-type, multi-page docs in front of me and says "sign here, initial there, blah, blah, blah," I laugh. Are you kidding? I'll read them; I'm in no hurry. I ask questions. In particular, check the terms of the mortgage. APR, fixed or adjustable? Balloon possible? Negative amortization possible? On the sales docs, is the price what you expected? Always ask ahead of time that a copy of the closing sheet, called a HUD-1, be given to you the day before closing, so you can review it. Good luck!

Maryann Haggerty: In tomorrow's Real Estate section, columnist Benny Kass provides a check list of things to do at closing. I'm not sure if a link exists to that yet...

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Silver Spring: So when you say timing on a micro-level is foolish, what does that mean? My husband and I are expecting our first child in March. We'd like to be settled before then. How soon should we start seriously looking? We're already keeping our eyes on homes in different areas to get a feel for prices, but when should we start talking to a realtor? Are there times of the year when sellers are more desperate? Thanks!

Maryann Haggerty: What I mean is that you can't make important life decisions based solely on market cycles, particularly as those cycles affect specific neighborhoods at specific times. You can't predict whether prices will be $5,000 higher or lower six months from now in Zip code 12345.

Instead, you need to look at how homeownership fits into your overall life. Planning on moving in a year? Rent for now, no matter what home prices do. Planning on staying in one place at least five years? Consider buying.

In your situation: You really don't want to be packing in your eighth month, do you? It sounds as if you are on a sensible time table. Look around. Figure out what you like and don't like. Get your finances in order. If you take months to make a decision, then give yourself months. If you decide things swiftly, then you'll need less time.

One caveat: You may want to give all this mortgage market distress time to work itself out, especially if you're in the jumbo loan market.

Elizabeth Razzi: Congratulations to your family! I remember a long time ago, when I was expecting my first baby, that I felt a need to get EVERYTHING taken care of before baby day. Much to my surprise, I learned that babies are quite portable. Seriously, it probably wouldn't make too much difference if your move comes a couple of months after the birth v. a couple of months before the big day. You'll be exhausted either way.

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Tenleytown, D.C.: My roommate and I applied to rent a house in Tenleytown last month. We gave the landlords our applications, our application fees, and a check for the application deposit (which we were told would be returned to us or put towards the security deposit). A few weeks later, we found a new place, and then told the Tenleytown landlords we weren't interested. However, I recently noticed that they have just deposited our rental deposit! And now they have cancelled their email address and do not seem to respond to phone calls. What can I do?

Elizabeth Razzi: Bummer. But you have to understand that is the reason why the landlord asked for an application fee. That landlord could have locked up a different tenant if you hadn't already made the commitment. However the canceled email address and non-response to phone calls are still worrisome. What if you really did intend to move in? Is that landlord legit?

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New York: My husband and I are looking into buying next year.

Could you please recommend some good resources (books, websites, etc.) that we should look at? I am really a novice at all of this and all the real estate lingo really confuses me at times.

Thanks!

Maryann Haggerty: Well, of course, start by reading the Real Estate section/site of The Post regularly.

I'll also recommend Elizabeth's books, so that she doesn't have to. (And because they're good.) Those are "The Fearless Home Buyer" and "The Fearless Home Seller."

Your library and book store will have many other resources. (Avoid anything that promises to make you rich quick.) And there are many many many Web resources. Look at the Fannie Mae and Freddie Mac sites. Also investigate such popular sites as Zillow, Trulia, etc., etc. There are more than anyone can count.

Elizabeth Razzi: Thank you, Maryann. Actually, the government has some very good info as well. Go to www.HUD.gov and explore. They also have a link to certified housing counselors who can offer impartial advice and help with budgeting. You don't have to be in financial trouble to take advantage of that type of guidance.

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Benches: Benches could lower property values if they become a popular homeless hangout.

Elizabeth Razzi: Maybe those tiny wrought-iron Victorian benches, uncomfortable for everyone to sit on, let alone sleep on, would fit the bill.

Maryann Haggerty: Yes, but in most neighborhoods (including most blocks of Adams Morgan) that's not a concern. Benches are unlikely to attract the homeless who don't already frequent a specific location.

Of course, if the building is in a highly trafficked location, loitering should be a concern.

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Springfield, Va.: Our three-level townhome has been on the market for two months now. How soon can we expect to get a sale? What is the average period of time for homes on the market these days?

Maryann Haggerty: In Fairfax County in August, average days on market was 78 days, according to MRIS stats (the local multiple listings service.)

Elizabeth Razzi: That's not really an abnormal length of time for selling a home. During the boom we got used to home sales happening in a week or two, sometimes less. Now, that was strange.

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Reston, Va.: Is it really easier to sell a home in the spring, or is that a myth?

Elizabeth Razzi: Yes and no. There are more buyers AND there are more sellers, so you have more competition. Homes around here tend to look their best in the spring, which does tend to make it a bit easier. But since there is so much supply on the market now, if you have the option of selling now or waiting until next year, I'd probably wait. There's also more chance that the market for jumbo loans will have settled down.

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Rockville, Md.: Are you seeing more single family homes being turned into rental properties these days? I wonder about those speculators who bought at the top of the market now that prices have retreated a bit.

Maryann Haggerty: Oh, definitely. And it's not just investors. People who have been transferred and had difficulty selling have also put houses on the rental market.

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Arlington, Va.: I hope the Arlington poster with the hubby looking for real estate prices to drop another 36 percent isn't looking in Arlington. According to the Sun Gazette, the average price in Arlington is up over 18 percent from a year ago.

Arlington Home Sales Take Turn for the Worse

Maryann Haggerty: That is indeed true. (And days on market are down, according to those same MRIS stats.) But in Arlington--as in every other very localized place--those month-to-month numbers should be taken with a few grains of salt. The one-month sales number is small, for one thing. After all, we sometimes forget this, but Arlington is a very small place.

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Bethesda, Md.: My husband and I bought our first house in the Friendship Heights area of Bethesda, Md. for $600,000 about two years ago. It was a fixer-upper to be sure, and we have made many improvements to it and love it. However, it has one bathroom and it's small (1,300 sq. ft). Also, since we bought it, our joint income has increased and we could probably now afford a house for around $850,000. But, from here on out, our income will grow very slowly at a relatively flat rate (e.g. with inflation). So, as much as we love it, we will need more room. My question is, do we sell it now at a break even price or slight loss in order to take advantage of the buyers market right now and the value of our money now, or wait until we absolutely need more space (when we have kids in a few years). Part of me thinks we should get into a more expensive house while the market is good for buyers and we can get the size house we want for that price. But the other part of me thinks it would be a bad idea to sell at a break-even or slight loss given what we've put into the house and the fact that we are relatively happy here for now. Any thoughts?

Elizabeth Razzi: So, the question boils down to whether you think the new house would go up or down in price more than your current house. If I could figure that out I could make a good living trading foreign currencies instead of writing columns. Alas, I can't do it. The sure thing, though, is that you need to figure out exactly what you could afford, not "probably." And I don't think it would be unreasonable to put off the decision until spring, when financial markets may have had more time to settle down.

Maryann Haggerty: One other thing to put into that equation: Can you use these interim years to save up the money you would otherwise be spending on the bigger house?

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Sterling, Va.: I am looking at locking in the interest rates on my mortgage as I will be closing on a home by end of next

month. But, I'm not sure what to make of the recent Federal Reserve action of dropping rates. Does this directly effect the 30-year FRM rates?

Do you think the 30-year FRM will also fall on average by 0.5 percent corresponding to the recent action by the federal reserve. If yes, then should I wait a little longer, for this move to translate into a corresponding mortgage rate drop, to lock in my rates?

Elizabeth Razzi: No, the Fed's rate cut will not drive down 30-year fixed rates. It's a strange phenomenon, but a Fed rate cut can drive long-term fixed rate loans higher. Those rates are determined by the bond markets, and some bond investors are worrying about higher inflation developing as a result of the Fed's lower short-term rates. So, no, I would not wait for a lock in.

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Leaving Las Vegas: I will be returning to the D.C. area within the next couple of months with my family. We would like to live inside the beltway and would like to find a home where the schools are great and not too crowded. So far we have thought about looking in the City of Falls Church. Are there any areas that you would recommend looking? We are very open to finding a house that needs some TLC and remodeling. Thanks.

Elizabeth Razzi: Falls Church City schools are indeed quite good. There are some modest homes very definitely in need of TLC, but they're still rather expensive. Be sure to look at neighborhoods in Arlington and close-in Maryland as well. You might schedule a school-hunting trip to the area even before your house-hunting trip.

Maryann Haggerty: Almost all the suburban schools around here are considered excellent.

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Ashburn, Va.: Is there any rule of thumb for deciding whether to upgrade appliances, carpet, etc., before putting your home on the market?

Elizabeth Razzi: Basically, you upgrade if you have to. If the carpet is nasty, you definitely want to replace it with a fresh, neutral and inexpensive carpet. If the appliances work well and aren't scary looking, but maybe not as fashionable as the neighbors', you might just leave them alone. Buyers are looking for good prices these days.

Maryann Haggerty: Your big returns will be on the simplest things--decluttering, painting, cleaning REALLY WELL, and sprucing up the front yard...

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Upper Marlboro, Md.: The sales listing on my home is due to expire next month which only produced two lowball offers (which I rejected).

It has been suggested that I look into offering a "land installment contract." While I understand the basics of this type of contract, what do you think are some of the pros and cons of this type of arrangement for a seller? Thanks!

Maryann Haggerty: A land installment contract is a variation on seller financing. It can indeed be a magnet for buyers. A seller may also have certain tax advantages. However, if you need cash up front from the sale, it likely won't work for you. Also, should the deal go sour, the eviction process might get messier than a standard foreclosure would. You should do some more research, including talking to a lawyer.

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Elkridge, Md.: Hi Maryann and Elizabeth, I'm researching having foam insulation put into the exterior walls of my home from the outside of the wall. I may end up choosing between PolyMaster's RetroFoam and BASF's Comfort Foam. I welcome all comments. Thanks!

Elizabeth Razzi: Oh, goodness. Comfort Foam sounds like a bedroom slipper to me. I'm afraid I can't help you on that.

Maryann Haggerty: Ditto.

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Clifton, Va.: Back in 1999 housing prices ahdnt taken off let. The previous owner of my TH was selling FSBO becasue he could only make a few thousand over what he paid for the hosue or so he thought. Previous 3 contracts fell through because buyers didnt have the financing. I offered him $186 after low balling him and with the repairs he needed to make and 3% he paid my broker he lost money since he paid $185k. He accepted. 120 days later a TH on same cul de sac as mine sold for $229k in 3 days. Rather be lucky.

Maryann Haggerty: (I'm assuming that means "I'd rather be lucky than smart.")

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Petworth, D.C.: My husband and I just completed a refinance a few months ago to get rid our interest only ARM. Our new mortgage is a 30 year fixed at 6.25 percent. With the new rate cut this week, what is the likey impact on home mortgages? I guess interest rates would have to drop considerably lower than that for us to consider refiancing again to justify the cost?

Elizabeth Razzi: It looks like you made a good move jumping on that 6.25 percent fixed. The Fed's rate cut affects short-term rates. It actually may cause long-term fixed rate loans such as yours to rise a bit, if bond investors get worried about inflation. I wouldn't plan on refinancing soon.

Maryann Haggerty: I suspect that your head is still very much in the mortgage market--after all, you have been spending a lot of time and energy getting out of that ARM and into a nice new fixed-rate mortgage.

So guess what? You succeeded. Relax. Stop second guessing yourself. That 6.25 percent is a great rate.

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Maryland: One way of lowering college costs ... if you can know where your kids are likely to go is to buy a two to three bedroom place in the area. Gives your kid somewhere to live and you can rent rooms to their friends to further offset costs.

Elizabeth Razzi: The idea of renting rooms to the kids' friends just gave me flashbacks to my college days. Yikes! Actually, that is a sound strategy that quite a few parents pursue.

Maryann Haggerty: Yes, many parents do pursue such a strategy. But please, on behalf of your soon-to-be neighbors: Do this only if your kid is very responsible.

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Arlington, Va.: Why wouldn't a house in arlington depreciate from 500k to 350k in a couple of years? Those houses pre 2001 were CHEAP (less than 200k). Sorry, what goes up must come down. Please do not think that the northern arlington area is immune to the housing crisis!

Elizabeth Razzi: I think you answered it right there. Prices below $200k were cheap for a house so close to DC & Metro. What goes up must come down? Are you sure about that? Guess I'd better cash out all my investments and live in a cave.

Maryann Haggerty: Historically, real estate prices have tracked inflation.

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Greenbelt, Md.: I have rented around the the D.C. area for a number of years while finishing graduate school and a postdoc. Recently I landed a more permanent job, a tenure-track faculty position, in the northern Baltimore area. Regions under consideration include especially Columbia and Ellicott City for their intermediate location between Baltimore and established personal/professional contacts in the D.C. metro area. Given these circumstances, would you recommend buying a house or continuing to rent while waiting for the housing market to settle?

Elizabeth Razzi: It all depends on your personal situation. Economic forecasts are about as accurate as weather forecasts. If you'll be there at least five years, could make good use of the tax breaks associated with mortgage interest, and can find properties you like and can afford, buying is not a bad move. If you can find a great deal on a rental, yippee. But I'd be scrupulous about tucking away any money you save on monthly rent, in case that rental opportunity goes away when the housing market improves.

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PG County, Md.: Is it better to put a Hyattsville house on the market now or wait until spring 2008? I want to relocate back to the Midwest, but I don't need to hurry.

Elizabeth Razzi: If it were my decision, I would wait. There are two reasons for that. First: We're almost halfway through the September-October period, which tends to the market's little hurrah before the big winter chill. Second, for-sale invenntories are high now; you may do better if that gets whittled down a bit.

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Annapolis, Md.: There is a chance I might relocate to another state for my job, but I've only lived in my house for two years. Prices have been flat and I don't think I could sell my house for much more than what I paid. I might be moving elsewhere in the East, so it's not like I'll get the "bump" of buying a house in Iowa, for example, for half what mine costs. Is there any way I can avoid a huge financial hit?

Maryann Haggerty: Not really. You can trim costs around the edges, etc. Or you could consider renting the house out, if the market in your neighborhood will bear it.

But losses on sales of residences are not tax-deductible, and I know of no other way to magically transform a loss into a not-loss.

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Elizabeth Razzi: Whew! The fastest hour of the week (okay, two weeks) shot by. Thanks for the questions, and I'll see you in the Sunday business section.

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Maryann Haggerty: Thanks so much for joining us.

Tomorrow, in the Saturday Real Estate section, read about what features are standard in new construction. Also--and this is a very helpful one if you don't know this stuff!--how to deal with a septic system.

Check out Elizabeth's Local Address column in the Sunday Real Estate section.

And also, next weekend (Sept. 29 and 30) both the Saturday and Sunday Real Estate section will be Mega versions, looking in more depth at many facets of property values.

Enjoy what looks like it will be a lovely weekend...

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