Real Estate Live

Maryann Haggerty and Elizabeth Razzi
Washington Post Real Estate editor and columnist
Friday, December 19, 2008; 1:00 PM

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

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.

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's Real Estate section.

The transcript follows.


Elizabeth Razzi: Hello, everyone! We've had a bit of a technical glitch that may have deleted some comments filed ahead of the chat. We're trying to get 'em back, but if you'd like to re-submit one, please go ahead! We'd hate to miss them.


Maryann Haggerty: Yes, please re-send any questions you sent earlier. Also, send your new questions now, when we aren't backed up!

Thanks for joining us on this gray, gray pre-holiday Friday.


Rockville, Md.: Last year my BFs condo fees, which includes gas and electric, went up $100/month, ostensibly for energy prices. With the price of energy back down again, are condo associations reducing their fees commensurately?

Elizabeth Razzi: Oh, I wouldn't count on it. For one thing, they may still be paying high energy prices. A lot of folks have locked-in their energy costs by purchasing a one-year contract. It seemed to be the prudent thing to do back in summer when prices were soaring, with no turnaround in sight.

Maryann Haggerty: Energy bills have a tendency not to come down even when oil prices fall. That's just the way it is. The best most of us can hope for is that at least they don't go up more.

Additionally, condo associations, like the rest of us, are dealing with higher prices for just about everything. On top of that, many of them are having to absorb increased costs because of stressed owners who aren't paying dues, etc.

_______________________ The Condo Crunch

Maryann Haggerty: This story took a look at lots of the specific problems facing condos today because of fees not being paid, etc.


Lake Ridge, Va.: Good morning. I've read that recent home sales are up in Prince William County. What becomes of all the new home communities that aren't completed? How has this type of situation played out historically? Thanks.

Maryann Haggerty: Home sales are up in PW because prices are down, especially because of the bulk of foreclosures on the market there.

Generally, new-home communities that aren't completed when a market slows go into a sort of holding pattern until the developer/builder/lender or whoever picks up the pieces is ready to start sales again.

For residents who have already bought, it can mean some promised amenities don't materialize.

I do recall a friend who bought in a new-home community in the last slump. For years, his kid had lots of open space to play in on all those undeveloped lots surrounding him. Parking was not a problem, either.

Elizabeth Razzi: In Texas during the 1980s, when the oil industry led a spectacular bust, unfinished new-home developments sat abandoned for years after builders went out of business. Eventually new builders came in to take the projects over. Chastened by that example, most developers have pulled back on the number of new homes they would start without a buyer's contract in hand. So I don't think we'll see the kind of big development ghost towns that troubled Texas back then. What we'll see for a while is a great big pause. The unbuilt section of a development could stay unbuilt for a couple of years.


Chevy Chase, Md. : I like the article on knowing how much house you can afford. Where can one find the best Real Estate lawyers to seek advice from -- is there a particular firm that specializes in in it -- I am just wary of signing pre-fabricated contracts handed down to me by Real Estate agents. Thanks!

Maryann Haggerty: A lot of lawyers do real estate. Ask your friends. Ask your real estate agent. Ask your other lawyers who in their firm specializes. Ask the local bar association. One suggestion I've heard, tho I've never tried it out: Ask the local Realtors association who THEIR lawyer is, then call him or her.

Elizabeth Razzi: That last one -- asking pros who their lawyer is-- is a good one, if they'll tell you. Also, title companies often have lawyers you can hire to do this work. At least they can give you referrals.


22201: Why is it that D.C. homes are retaining their value while those of us across the water seeing price drops?

Elizabeth Razzi: Hi there, Merrifield (the 2201 zip code). Actually, not everyone in Virginia is seeing big price drops. But Merrifield is one of those areas that had a boom in condo construction, which boosted prices. But now a lot of that new condo supply is still unsold, and that's dragging values down. Homes are still hanging on to most of their value in the same old expensive, popular, close-in neighborhoods that have always commanded top dollar. I'm thinking areas like those along Chain Bridge Road in McLean, which is a sneeze away from DC. Prices there act similarly to the District--and for the same reasons. Limited supply, easy commute, broad appeal to buyers.

Maryann Haggerty: Commutes seem to be the big factor. Until quite recently, the rising cost of oil has happened at the same time as the real estate collapse. And I really don't see how current low prices of oil reflect long-term realities.


Silver Spring, Md.: How will the new Dulles line affect real estate in the area, is it a good time to buy in Herndon and Reston? For costs may rise once the line is functioning.

Maryann Haggerty: Metro has been a major boost to property values just about everywhere it has gone. (I would say everywhere, but maybe there's one station where it didn't help, and someone would immediately point that out.)

As with all land speculation--and that's what we're talking about here--time is a risk factor you need to take into account. It may be a long long time until that work is done. Heck, it may be a long long time until it begins!

Elizabeth Razzi: I recently heard local Realtor organization execs cite rail to Dulles as a reason to be optimistic about home sales and values. But I wouldn't hang my retirement portfolio on that prospect. Many other things can affect demand and value between now and Metro's arrival. And construction itself can dampen interest in a place. Who wants to live through that? Herndon and Reston may have lots going for them, but the effect of rail is just too hard to read.


Columbia: I have a question about the eye-popping mortgage rates we're seeing this week. Given the heavy influence the Fed and Treasury are putting on the mortgage market, is it likely that the rates will continue to decline over the next month or two, or should buyers lock in while the getting's good?

Maryann Haggerty: I wish I knew! Predicting this stuff is impossible even in normal times. We now have factors we have NEVER seen before.

I vowed to do this a couple weeks ago, but didn't. Now I really, really will do so. I need to find my mortgage docs from the last refinance and do the math that will tell me the target rates that would make another refinancing sensible. If you're on the cusp, you should do that, too. Then you should decide what the sensible point is for a lock, and remember to ask about the cost of a float down.

This assumes you have equity.

Elizabeth Razzi: It's on my to-do list, as well. Will I hit the very bottom of interest rates when I refinance? Probably not. It's a roulette game in the best of times. With all the government policies being changed, it's absolutely impossible to guess.


Gaithersburg: Maryann Haggerty: And I really don't see how current low prices of oil reflect long-term realities.

From 1986-2002, a barrel of crude sold for $25-35 adjusted to today's dollars. So at $33, we're pretty close to back there.

Maryann Haggerty: By "long-term realities" I meant the reality that oil is a depleting commodity and that global warming is a looming concern.

Elizabeth Razzi: Let's think back to conditions in China between 1986 and 2002. Not so many automobiles. They (and a few other rapidly developing countries)are a huge market for oil now, driving prices up, long-term.


Washington, D.C.: Will the rates on mortgages drop to 4.5%? For purchase only or refinance also?

Maryann Haggerty: Who knows? The way things were going this week, it looked like the free market was going to take care of that without the federal subsidy that was under discussion two weeks ago.

Elizabeth Razzi: Exactly. Though free market seems a quaint notion these days.


Washington, D.C.: Could you provide some insight about whether lowered interest rates are causing difficulty for those interested in refinancing due to lower appraised values? I only see these lowered rates benefiting those who are interested in purchasing while those who are paying higher rates with declining home values just have to hold out until things get better, assuming they do.

Maryann Haggerty: Lower interest rates aren't CAUSING the difficulty. The two are coincident, not causal. People are having problems getting loans if their homes don't appraise. Lenders don't want to give you the money if you don't have equity. Can't say I blame them.

Elizabeth Razzi: Not only are values lower, but lenders are demanding a higher (and quite reasonable) level of equity, at least compared to what they'd okay during the boom, before they will agree to refinance. If your equity is too low to allow a refinance, about all you can do is sit tight and wait for the market to recover.


N.C.: Hi, I have a question about building credit to buy a house-- I find it weird that one has to be in debt and then show that they can repay it to build credit worthiness! This is crazy and could be the reason for all the mess we are in. Is there an easier solution to building credit history? Thank you. you'll are the best!

Elizabeth Razzi: Well, thank you. But remember the old saying about getting a loan? The only way to get a bank to give you a loan is to prove you don't need it? Well, it's true once again. (Wasn't true during the boom, when all you needed was a 98.6 temp to qualify.) But it does make sense that you should prove that you can handle the dangerous drug credit by repaying small amounts before a bank trusts you with a couple hundred thousand dollars.

Maryann Haggerty: AS anyone who has ever raised (or been) a teenager knows, repaying a debt is a behavior that takes practice. It's not something we are born knowing. We start with small amounts, like paying back an advance in allowance, and work our way up to bigger stuff.

It is possible to build an alternative credit history with rent and utility payments, etc. But it is clumsy.

And before everyone piles on about the evils of debt: Debt is a necessary part of a working economy.


Rockville, Md.: What are the laws for building religious structures-- is it complicated or are permits easy to get? Are areas in D.C. sanctioned off for that purpose?

Maryann Haggerty: It depends on the jurisdiction. Check with the local zoning office.

Just about everyone regulates things such as parking as they would for any commercial structure. Some places regulate other things--for instance, Prince George's County has rules specifically aimed at preventing development of too many megachurches in specific areas. (All of course without trampling on First Amendment rights.)

Elizabeth Razzi: Public opinion isn't always in favor of new church construction. For one, it takes land off the property tax rolls. And, virtues aside, churches don't always make welcome neighbors--strictly from a convenience standpoint. They draw a lot of traffic. Neighbors even get irritated by church bells.


Washington, D.C.: With interest rates as low as they are, it makes refinancing look very appealing. However, taking into consideration there will be an appraisal process which could result in a lower appraised value of your home, in most instances, it wouldn't be sensible or even possible. Are most homeowners with an interest in refinancing having difficulty doing so due to this? Have you seen any recent statistics tied to the success rate of homeowners who are applying to refinance their mortgage?

Maryann Haggerty: We haven't seen statistics yet. We've heard anecdotes about problems with appraisal values.

However, I do question your "most instances." There are many owners who do have equity, because they have been in their homes for a long time. If for any reason these people missed earlier refi windows (ie, at the time their credit was bad), then this is an opportunity.

And rates now may have come down low enough to make refi a possibility even for those who grabbed the previous low rates in 2003.

Elizabeth Razzi: It's easy to forget that most people did not buy their homes in 2003-2005. I have heard, though, that lenders may not be able to handle a big rush of refinances. A lot of people have left that business in recent years.


Savage: With the one-year Treasury constant maturity yielding about the same as a Serta PerfectSleeper (1/2 of one percent), are many people whose ARMs went way up after their intro period expired, finding their payments affordable again without refinancing?

Elizabeth Razzi: Nice metaphor, Savage. Sure, they should be facing much better ARM adjustments. One problem is that so many borrowers couldn't even afford the initial rates they had.

Maryann Haggerty: The other problem is that many of those loans had artifically low teaser rates. (Tho I suspect the most blatant of those have already blown up.)


Sterling, Va.: Resubmitting just in case!

First time reader, writer and homebuyer here!

I'm a young pro making $47,200/yr (with an increase looming) that just got officially approved for a mortgage up to 200k by my lender. I'm going with a 30 year FHA and plan on using Loudoun's Down-payment and Closing Costs (DPCC) program. My plan B is using an FHA plus loan if that falls through, because I only have about 5k saved up.

My question is, am I a risky sub-primer? My lender assures me I'm not with my 698 credit score and other credentials but I just have this fear that I'm going to end up as, "just another foreclosure." I've studied my budget and, although approved for 200k, will most likely go with a TH in the 170-185k price range.

What do you think? Am I a risky venture or just being overly cautious?

Maryann Haggerty: Your credit rating means you're not "subprime."

But don't think of it that way. Look specifically at YOUR budget. Can you afford what you would be paying out each month? How much would that be at $170K vs. $200K? How does it compare with your rent? What makes you comfortable?

We'll look for last weekend's story about questions to ask yourself when deciding how much you can afford.

Elizabeth Razzi: The $5,000 in savings worries me. How much cushion would you have left after the purchase? What would you do if the furnace goes bust and you have to pay $1,000 for a new one? I think the best exercise you can do is to adopt your after-home-purchase budget before deciding to buy. (Account for the tax savings you'll get. You can figure that out using Quicken or...just assume for argument's sake that your tax savings will account for about 28 percent of your mortgage payments.) Live on that budget a while....and put the imaginary mortgage payment in the bank. You'll build up your savings cushion and you'll KNOW that you can afford the home.


I love but hate the Metro!: I just think that Metro in the D.C. are was very very poorly conceptualized-- there is no way to connect Shady Grove with Rockville and several other examples like that if you look at the metro map closely. I'd like to mention the Tube in London, there is one metro line called the Circle line which moves in a circle and connects all the open ended lines that end in different directions. I think the purple line should be such a venture which circles D.C. like the beltway but at the Metro level. Just a few of my thoughts, what do you think?

Elizabeth Razzi: Well, to be fair, London had hundreds more years to develop its urban layout before ever dreaming up the Tube. Washington's metro area, especially the 'burbs, hadn't developed the urban flavor it has now back when Metro was envisioned. The idea of commuting from Tysons Corner to Rockville simply wasn't imaginable. Oh, and Mind the Gap.

Maryann Haggerty: When I first moved here back in the '70s, Metro was still shiny (I was here the very exciting day you could finally take Metro from Capitol Hill to Foggy Bottom!) and the 'burbs were still the boondocks. As in, nothing in Tysons but car dealers. Seven Corners seemed bucolic.

Since then, transportation planners continually have sketched out new lines, new solutions--purple, silver, what have you. But guess what? No one wants to pay.


Worried in Md.: Hi. I bought my house last year for $320K. The house across the street, fully loaded, originally sold for $489K two years ago. It just sold for $202.

I will need to move out of state (N.C.) in less than two years. Is renting my only option if the market doesn't change? This is my first house.

Maryann Haggerty: As our producer says: We hope you mean $200K.

And if the market doesn't change in those two years, renting may not be your only option, but it may be your best one.

Maryann Haggerty: And OF COURSE I meant to joke: "We hope you mean $202K"


Silver Spring, Md.: It seems like there have been several reports lately about seniors not being able to sell their homes to move into retirement communities. I work at Riderwood (full service retirement community)and share with people why now, more than ever is a good time to consider moving. What do you think?

Maryann Haggerty: So, can you share the answer with us?


Silver Spring, Md.: My husband and I have started looking for our first house, and it seems like all the houses that are for sale in areas where we are interested in buying are really not our style and will require quite a bit of remodeling. So two questions: 1) would a construction loan that morphs into a mortgage be the right kind of loan for us? and 2) what kind of professional can tell us (before we buy the house) whether the kinds of modifications we'd like to do would be possible and permissable? Thanks!

Maryann Haggerty: 1) Yes, that is probably the right loan for you, if you can get one these days.

2) An architect.

Elizabeth Razzi: Good for you for wanting to find out what type of rehab will be possible BEFORE you buy! Too many people just assume they can get what they want. Also look into FHA rehab mortgages.

_______________________ How Much House Can You Afford?

Maryann Haggerty: Here's the link to the good piece on deciding how much house you can afford to buy....


Washington, D.C.: I have good credit and a chunk saved for a downpayment, but I want to pay off my student loan before I buy a condo. I'll be able to pay it off in a year and then plan to start house hunting in 2010. My friends/family are getting on my case that I should buy now b/c rates are so low. However, if I do, I'm going to have to go back to minimum payments on my student loan and it will take many years to pay off. Am I stupid for wanting to get rid of one debt before I take on another?

Maryann Haggerty: No, you aren't stupid. It's your money, not theirs.

Elizabeth Razzi: No, of course you're not stupid. I don't think student loans need to be fully paid off before someone buys a home, as long as the overall debt load is truly manageable. But only you know what's truly manageable--and desirable--for you.


Laurel, Md.: today is citing 30-year fixed rate at 5.27% and 15 years at 5.23%. I've never heard of a flat yield curve between 15 and 30 before. This must be some kind of aberration, but did one of the government programs manage to include 30-year mortgages and not 15's?

Elizabeth Razzi: I noticed that, too. Same quote for 15 years and 30 years. The yield curve seems to have taken a holiday. After all, people agreed recently to take a negative return -- to pay the government money -- to invest in the safety of Treasury securities.

Maryann Haggerty: I simply do not understand this one. Yield curve inversions are always a puzzle--and of course usually temporary.

(And for those of you whose eyes are glazing over: The inverted yield curve is the ultimate nerdy finance thing. It means market forces have decided to go out for a quick drink and let interest rates act wild and crazy for a bit.)


Anonymous: Let me provide a few of the reasons:

A person can rest assured that their deposit is 100% refundable and secure. In 25 years Erickson has always returned the deposit at 100%. The economy and the volatile stock market can not provide a 100% return on your investments.

A persons Service Package is locked in for an entire calendar year. The average increase across all Erickson communities has been 3-4%. The cost of living is always rising and the cost to remain in your house or condo is not locked in (i.e. gas, electricity, water, taxes, maintenance, cable TV). Now that is "peace of mind"!"

A person health is not predictable. So, why not move now before your house or condo affects your safety and your health. a person can begin enjoying the Erickson lifestyle before the condition of their health should change.

Worrying will not stop the economic situation, will not stop a house or condo from needing repairs, will not stop a persons cost to live in their house or condo from rising, and will not stop the value of your house from declining.

Maryann Haggerty: This answer comes from the retirement community employee who I asked to explain the pluses of moving now, despite the real estate market.


McLean, Va.: What's going on with the high end 1.5M+ market? I heard this market follows a different trend from the rest of the market. Also are interest rates for super jumbo following the rate cuts for non jumbo mortgages?

Elizabeth Razzi: The high end isn't so insulated these days. Even rich folk aren't feeling as rich these days. Stock market losses are cutting into downpayment funds. And financing for those big loans is still very slushy, if not frozen.

Maryann Haggerty: If you're in that market, you need an individual talk with your lender. Equity is a big concern.


Worried in Md again : Yes, I meant 202K! Sorry about that.

I'm worried that I'll have a hard time finding folks to rent a home that they could probably buy outright for cheaper. Sigh. Thank you.

Maryann Haggerty: Sigh.


Logan Circle: My husband and I bought a condo almost a year ago exactly. We have a second mortgage with an interest rate that's higher than we'd like it to be. Do we have any chance of getting that rate lowered at this point?

Elizabeth Razzi: I might not mess with a year-old equity loan, at least if I didn't have a good chunk of equity left after accounting for those two loans. If you have at least 20 percent equity--still--after accounting for those two loans, maybe you can refinance the second mortgage. Maybe.

Maryann Haggerty: Yeah, it's all going to come down to equity, and if you needed two loans to buy, then I'm awful certain you don't have the 20 percent or so you would need to refinance/roll the loans together. You could always call your lender--there's no charge for that--and ask whether it's a possibility. But be prepared for disappointment, and don't pay for a new appraisal that may simply be a fool's errand.

_______________________ 30-Year Mortgage Rates Sink to Lowest on Record

Maryann Haggerty: This article in today's paper looked at the problems people are having actually taking advantage of current low interest rates.


Mount Airy, Md.: Hello :

Resubmitting this question. Can you tell me where I can go to check for the current FHA rates?


Elizabeth Razzi: Most lenders will give you their FHA rate. The FHA does not set interest rates, lenders do.


Washington, D.C.: Two years ago, I made a $5,000 personal loan to a friend who was going through a divorce. She is very likely to default on the loan because of her changed economic circumstances (she has lost her job). I intend to take a loss for the bad debt on my income tax return. Do you know if reporting a bad debt is likely to adversely affect my credit score (which was over 800 the last time I checked) for purposes of getting a mortgage? Thank you.

Elizabeth Razzi: No, I don't think the credit bureaus will pick that up with regard to your credit record. It's a relatively small change to your income, anyway. Anyone else have ideas?

Maryann Haggerty: If the only place it's recorded is on your tax returns, it won't show up in your credit records--or in the your friend's records.


Alexandria, Va.: Is there a standard opening offer in today's market? For example, are people generally offering full value, 5% or 10% less on what seems on the surface to be a fairly priced house? And any idea on how close to full value most places are closing for nowadays?

Elizabeth Razzi: Well, nothing's ever really standard. And if it's a great deal at a great price (there are some out there)...and you want THAT specific house, then you'd better bid asking price. But if you're willing to lose that specific house and want to open negotiations, offer 5 or 10 percent less, and see what happens. The old rule of negotiating still applies: The more you really want it, the less power you have to negotiate.

Maryann Haggerty: ...And if it's ridiculously overpriced--there are still some of those out there, too--offer a lot less than that. But be prepare for an indignant response from the seller.


Washington, D.C.: I took out a 2nd mortgage in the form of a HELOC when I bought a new house earlier this year. I'd like to pay it off in full within the next 6 months, but read in the contract's fine print that I need to keep the account open for three years or there will penalities. Even if I pay off and keep the account open, could the lender just close the account in light of these decreased credit line announcements by the major banks to do so? Or, are HELOCs viewed completely differently by the mortgage companies? Your perspective would be helpful.

Elizabeth Razzi: Okay, a couple of different things going on here. If you pay off the HELOC within the first three years, typically you owe back the closing costs that the lender waived when you took out the loan. It might be only a couple of hundred dollars for the appraisal; check your documents, or ask the lender. If you don't pay back an outstanding balance ahead of time, the lender is not going to call the amount due just because property values have decreased. But the lender may very well decide to shrink the amount of unused credit line available to you, if prices in your neighborhood have gone down.


Maryland: Is it too late to become a real estate investor? I have about $30k left from 401k and think buying some rental property might be a good idea. What do you two think?

Maryann Haggerty: The big question, I suspect, is not whether it's too late, but whether it's too early.

Read a few investing books, do your math, and take a look around to see if there are properties in your price range. But with $30K, your price range isn't very high.

I don't think you can invest 401K money directly in real estate, tho--in a self-directed IRA, yes, a 40K, no. Right, Elizabeth?

Elizabeth Razzi: No, I don't think you can buy real estate with a 401k. And I trust you wouldn't take the 10 percent penalty from cashing out of the 401k to buy real estate. I'd caution you to make sure you stay diversified. The stock and bond markets are scary things these days, but won't always be. And most of us are going to have to keep some of our retirement savings there.


Dupont Circle: Could you recommend a Web site or another resource that would allow a homeowner to understand what the estimated appraised value of their home would be if they were interested in refinancing?

Elizabeth Razzi: I don't know of any that would be reliable enough. You could do some searching for recent sales of homes that are closeby and similar to your home. That will give you an idea of how an appraisal would come in.

Maryann Haggerty: Here's the deal: Web sites that give you home values are NOT as precise as appraisals. They simply aren't. Look at Zillow and Homegain--but don't think of them as anything more than a possibly amusing guess.

(And yes, Zillow folks, I read the explanations you send. Read my answer--your numbers may not be meant to be taken as appraisals, but people are asking whether they should rely on them.)


Tysons Corner: All- Please keep in mind that when you refinance, you begin the 30 year amortization all over again...something to consider...not just rates...

Elizabeth Razzi: True -- but you don't have to. You could aggressively prepay, or take out a 15 year term, to keep your payoff date on track.


Washington, D.C.: I am looking to purchase a new condo in NW DC, preferably the U Street area. However, it doesn't seem as if these builders are looking to come down significantly on price. Is there typically just too much debt that builders are dealing with which makes it worth it for them to just hold out with prices as they are until things get better?

Maryann Haggerty: There's a certain point at which the builder just can't absorb the loss. It's better for them to rent the units out--or to let them go back to the lender.


Elizabeth Razzi: Well that's it for today, folks. This Sunday's column is about what kind of market we may see in 1009. I'm happy to report we both will back to chat in the new year, with the first chat scheduled January 9. Here's wishing you safe travels, good friendships and a prosperous new year.


Maryann Haggerty: We have to go now. Thanks for all the questions in response to our earlier appeals... as usual, we couldn't get to them all, especially the ones that came in later.

Tomorrow's Real Estate section, in the spirit of the holidays, looks at... refrigerator magnets!!

Have a wonderful holiday season; we hope to chat with you next on Jan. 9.


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