What's It Worth? Housing Outlook 2008

Allan Lengal has been with the Post since 1997. For the last year he has covered the residential real estate market, including the building industry and mortgage fraud. Allan brings a no-nonsense approach to the field having formerly covered the federal law-enforcement beat.

Nancy Wilson has been a real estate associate since 1980. Specializing in the northwest Washington, D.C. and Montgomery County, Md. areas, she stays in touch with the community pulse through her involvement in civic associations, church groups, and real estate.

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

The transcript follows.

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Allan Lengel: Good afternoon. My name is Allan Lengel. I'm a real estate reporter for the Washington Post. My guest for today is Nancy Wilson, a real estate agent with Evers & Co. I recently followed around Nancy and her co-workers who visited a home in upper Northwest Washington to discuss the price of the home before it was listed. I then chronicled the process of pricing the home and wrote a story in Saturday's paper.

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washingtonpost.com: Read Allan's story here: 20 Pros, One Savvy Couple, A Fast Sale, (Post, March 29).

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Bronx, N.Y.: When will the falling home prices stop?

Allan Lengel: I've spoken to experts. The more optimistic ones see the possibility of that happening at the end of the year, but more are saying probably not until at least early '09 or later.

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St. Leonard, Md.: It is really amazing what $825,000, buys in different locations. In D.C. it buys you an old house, on a lot, maybe off street parking for one car, no master bath and who knows what else with the house being 78-years-old. Now take that same budget of $825,000, and in Calvert County you can get waterfront property or a McMansion with acreage, garages for parking and a true master suite. And only a one-hour ride from D.C.

Allan Lengel: I think proximity to jobs is a big thing. Because of the high gas prices, some people are trying to move closer to the city and that's going to affect the prices. No question, the further out you go, the more house you can get.

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Entry level into the local market: Hi there. I was wondering what you think of current prices for starter condos or homes in the District. As sone who makes a modest income, I'm trying to buy in, but because I've already owned/sold property in a much less expensive market out of state, I don't qualify for first time homebuyer gov't aid (from D.C.) or via a loan package (low percent down on a fixed rate). Are they overvalued? Will there be a decline?

Allan Lengel: Nancy, can probably answer better than I, but condo prices seem to be reasonable in the city. Prices have come down in some neighborhoods ... but more importantly, they are no longer spiraling out of control like they did just a few years ago.

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Allan Lengel: Nancy -- Experts have different opinions on when price will turn around. What's your read on that?

Nancy Wilson: Allan, I have no crystal ball to know exactly what is going to happen in the market. The market in our close-in area is going through a correction period but it really is house- and neighborhood-specific.

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Herndon, Va.: We noticed in the housing outlook that one of the areas that have gone up in price is the 20170 area of Herndon, Va. We bought a brand new Stanley Martin townhouse in that region at the height of the market in 2006 for about $585,000. We noticed that although the people in our community have bought their townhomes to live in, the people who bought townhomes in a close by (about 1 mile away) Stanley Martin community bought theirs as investment properties. Now that the market has crashed, a lot of those investors are selling short or foreclosing. We would like to move to a different area soon, and was wondering if the foreclosures at the other Stanley Martin community would impact sale of our home.

Allan Lengel: I think one or two foreclosures might not hurt. But when they start to pile up and investors are trying to dump the homes, you have a problem. It's not healthy for the market and it certainly makes it tougher for you to sell.

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Dumfries, Va.: We purchased a house in March 2006 for $499,999 at 6.12 percent fixed 30 years, balance $360,000. Looking to lower the payments, at what rate I should refinance? Here's the break down:

Principal 400

Interest 1850

Escrow 450

Advice on how to lower payments?

Nancy Wilson: You should contact the lender who is servicing your loan -- generally in Virginia the rate needs to be lower by at least one percent to realize a difference because of the refinance charges. Will your home currently appraise for $499,999 or more?

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Herndon, Va.: I'm extremely frustrated with the ignorance and irresponsibility of "homeowners" in this region. It really annoys me that people took out these ridiculous loans and got talked into buying twice the house they could afford while my family was responsible by selecting a standard 30-year fixed loan with a sizeable downpayment. I went through the talks with mortgage brokers trying to sell me these STUPID loans three years ago when you could see how dumb they really were. Yet here we stand with people who made bad decisions getting what they deserved (foreclosure), but even those of us who were responsible and financially sound are taking just as big of a hit as our property values plummet with a virtual guarantee from our just-as-irresponsible-local governments that a round of tax increases are coming.

What is a homeowner to do in this region? We were not fortunate to cash in on the bubble, and unfortunately bought on the high side before it burst. Now our neighborhood is deteriorating, and we're being asked to pony up more money to the county for what? Just a bit of a rant and vent, but it just frustrates me that such blatant financial irresponsibility was allowed to propogate, flourish, and was encouraged by realtors in the area, while those of us who are trying to do things the right way are left to pick up the pieces and deal with properties and neigborhoods that are mere shells of what they were 10 years ago.

Allan Lengel: No question there was a lot of irresponsible behavior in the market at every level, from the customer to the agents to the mortage lenders. It's created a mess and yes some people had no business buying homes they could not afford. The government is torn between propping up the economy and intervening and letting people pay for their bad judgment. It's not a pretty picture and we're all paying for it in one way or another.

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I love S.W.: I live in Southwest Washington where the home prices have fallen a bit. I suspect that some of that is due to it being the smallest quadrant, with less notoriety and residential housing. Do you you think that with the Nationals stadium, the Waterside mall renovation, Arena Stage renovation and Waterfront renovations, the area will see great appreciation in the near future?

Nancy Wilson: I love S.W., D.C. also and think that it is a little jewel of an area. It remains to be seen if all the new development will increase demand for the area but it will get more people down there and expose them to the charm and convenience of this little neighborhood.

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Anonymous: I am listing my house for sale this week and I am struggling with what price to go with. Our agent, like the one in your article, is trying to get us to drop it $10,000. I assume we will get low ball offers anyway so I think we should go higher. Do you see people offer full price for houses on the market these days? I am located in North Bethesda where sales seem to be pretty steady and healthy lately. But we want this to go quickly.

Allan Lengel: Nancy, again, can probably answer better than I, but I think that pricing too high has its dangers. People see a vulnerablity when a house languishes on the market. They know they can start to bid lower. Some people say the market will correct itself if the house is a desireable one and priced a bit too low. In that case, you may see multiple bids, which can raise the price.

Nancy Wilson: Yes, if buyers perceive the price as value, you will get asking price or better.

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Washington, D.C.: It seems to me that housing prices need a strong correction in order to fall back in line with historical averages for price increases. From what I have read prices usually track income, but in the past five years housing prices have soared well above income gains. The price increased was fueled by easy money and lots of speculators. D.C. is an income and job rich area, but even here prices are out of line with income growth. Shouldn't we expect large decreased in housing prices over the net year or so before the market bottoms out?

Allan Lengel: I'm going to ask Nancy to chime in on this one. I think we're going to continue to see price declines for the remainder of the year, but I'm not sure you're going to see a lot of that in some of the coveted neighborhoods like Chevy Chase and Arlington and Capitol Hill.

Nancy Wilson: Yes, the prices are in line with income. Remember, we have one of the most prosperous metro areas in the country and it doesn't seem overpriced compared to other economically successful metro areas.

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The 'burbs, Va.: Any advice you can pass along to two suburban NGO workers trying to find their first rental in D.C.?

Allan Lengel: The pool of rental units has increased in the past year as condo projects have been converted to apartments. I think the newer apartments are offering great deals... sometimes two free months of rent, but the rents often are not cheap. Your best bet is to go to older apartments which may be offering a month or two of free rent at more reasonable prices.

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Maryland: Do you think that part of the correction of the housing market will include a re-loosening of mortgage-loan qualifying? Not to the unsustainable, predatory level that contributed to the crisis ... but to allow consideration of folks like my husband and me, who love the idea of buying and keep seeing more and more great places go up for sale, but who are definitely lower-middle class. It seems to me that, with some reasonable faith, we could be the group that helps to balance things out.

Nancy Wilson: No, there will not be a loosening up of mortgage qualifications. However, the new FHA loan limits will help some buyers.

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Arlington, Va.: My roommate told me she's moving in August. We're currently month-to-month. Am I better off getting another year lease (which will hopefully go month to month after a year) before I look to buy or should I look to buy in the very near future? Do you think a lot more ARMs will reset within the next year, thus causing a lot more foreclosures, which means more supply, and hopefully declining prices?

Allan Lengel: I think we can expect more foreclosures. But it's hard to time the market to the exact moment. Now is a good time to buy if you see something you like and plan to hold on to it for five years or more. Are prices going to go down? In some areas, yes. In others, maybe not so much, or may not at all. I think you have to figure out where you want to buy and get a sense of prices in that neighborhood.

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Silver Spring Maryland: What happened to all those WP stories about limtless demend for housing in D.C. driven by job and population growth? Doesn't the media bear some responsibility for fueling the housing hysteria?

Allan Lengel: Well, I think there was an insatiable demand for housing in this area, but when the bubble burst, people backed off and realized how crazy things had gotten.

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Rockville, Md.: Why arent prices falling as fast as they rose? Some areas saw increases of 50 percent a year -- that's ubelievable. Some of the price was probably attributal to rising land and contructions costs, but most of the homes were existing stock which only increased in value because of demand. Now demand has slackened shouldn't these gains roll back? I mean a house built in 1971 didn't inflate in value because of increased costs to the homeowner, it was driven by wild speculation. So what gives?

Allan Lengel: I think people are more reluctant to sell at such low prices and are more willing to hold on if they see prices are going to roll back too much

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Arlington, Va.: Should I look at Columbia Pike, based on the supposed streetcar system that's coming there. I understand it would be built without Federal funds.

Allan Lengel: I'm a big fan of public transportation and I think it enhances value and is a good selling point.

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Gaithersburg, Md.: How much of a factor in pricing to sell is the location and neighborhood of a townhouse? I've been told that pricing depends on comparable sized homes within the area, but not all of these homes are in the best of locations. How does that work?

Nancy Wilson: Location is a prime factor in pricing. You should stick with the same development when looking at comps. It is a question of evaluating the location, condition and demand for the development.

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Anonymous: I totally agree with the person complaining about the irresponsibility of all concerned with promoting and accepting risky loans. I'm aware of someone who recently got a loan to buy a house in another state when neither she nor her husband had a job there and for the last eight months they had been living with relatives because they had been evicted from their rental for non paymet of rent. And no, they did not have a down payment, nor did anyone co-sign for them. Now they are in trouble and can't make their mortgage payments.

How did/does this continue to happen?

Allan Lengel: That's certainly a good question if that's a recent case. No question, we need to tighen up regulations and crack down on irresponsible lenders.

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Recourse for Lyon Village: I suggest not panicking that "these types of people" will be near you. I live in Takoma Park, which is a model for harmony between high-value, in-demand homes and laws that ensure affordable housing for middle-income people, including me and my hardworking, taxpaying family. Having "these types of people" close by doesn't mean doomsday for you. They have a right to live in and raise their children in a good neighborhood, just like you.

Allan Lengel: I think that's a good point.

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Alexandria, Va.: I am sorry but I don't believe I read one of your answers correctly, do you actually believe that housing prices are in line with incomes, even in this area? My husband and I make $135,000/yr and have $35,000 saved to buy a house but still can't find anything decent to buy (no condos please since part of what we are trying to get away from is the noise of an apartment and the fees are ridiculous). I am not asking for much, two to three bedrooms (not huge, just regular), 1 1/2 baths, something without cockroaches (i.e., looking VERY carefully at middle rowhouses/townhomes), something with parking, and central A/C. I have calculated our top purchase price to be $325,000 and while there are homes coming into this range now, people are still asking that much or more for what amounts to a shack or worse. Yuck!

Allan Lengel: I think it's tough to find good affordable housing that you're talking about unless you move to the outer 'burbs of Washington.

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Upside Mortgage, Gaithersburg, Md.: I am one of those people caught in an upside mortgage situation. What angers me is that I had no choice but to take out a zero down payment mortgage. Prices were out of control and were outpacing my ability to save for an adequate down payment. Luckily I can afford my payments but it is discouraging to think I own a depreciating asset.

Allan Lengel: That is a frustrating situation.

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Alexandria, Va.: As a potential buyer shouldn't I look at what the owner paid for the house? How large their mortgage is? I can search this information online and I would think its relevant in making an offer. If they expect some outrageous profit on their place when they have lived in the house of a long time and haven't done many upgrades, I would like to know that.

Nancy Wilson: You may look at what the owner paid for the property but it is just one of the factors to consider when making an offer. The owner's mortgage should not be relative. In some cases, if it was a recent purchase and the owner will need to bring funds to the table, it might be good information for a buyer to know.

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D.C.: I noticed that the Brookland neighborhood in NE appreciated in price according to your outlook. I may look to buy there and wondered what is driving the price appreciation in this area of Northeast? What can you tell me about this neighborhood in terms of safety and quality of life there?

Allan Lengel: I don't want to speak with expertise on this. But my sense is that you get a lot of house for your money in the Brookland neighborhood and it has a nice neighborhood feel. As far as safety issues, I suggest, if you haven't already, going on the D.C. police Web site to check on crime and visiting the police station. You can ask for the officers who patrol the area and ask them questions about crime and safety.

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Washington, D.C.: What are some reputable sources for finding foreclosed homes in the area?

Allan Lengel: Long and Foster lists them on its Web site ... and other agents list them as well.

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D.C.: My husband and I are self-employed (seven years, steady/growing income year to year) and would like to finally buy a house, but we're flummoxed by what we may or may not qualify for and the best way to go about it. By my estimate, we can comfortably afford a smallish condo or a townhouse in a not-quite-yet-gentrified area of D.C., so we don't have a ton of options but there are places out there.

Do we start with an agent, or with a bank, or with a local home-buying counseling organization? We tried to buy a few years ago but between the stripped-down contracts and a major error by the mortgage company (wrote a pre-approval based on regular employment instead of self), lost the house and our deposit, so we're sort of gun-shy about trying again. Thank you.

Nancy Wilson: I am so sorry to hear your bad experience. You need to call friends and get agent references from ones who have had good experiences. Interview a couple of them to see if you feel comfortable and that they will definitely represent your best interest. You need a good buyer broker! Good luck!

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Nancy Wilson: Thanks to the readers for such an assortment of questions and I apologize that time ran out and I didn't respond to all of them. Thanks for contacting us.

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Allan Lengel: I want to thank everyone for their questions in these interesting times. And I want to thank Nancy Wilson, who is a pro's pro. It was interesting to watch her in action.

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