Thoughts on the Washington, DC, and Northern Virginia Real Estate Market » foreclosure

Washington, DC, Delinquencies and Shadow Inventory

Katie Wethman — Mon, 05 Dec 2011 16:38:24 +0000

The Mortgage Banker’s Association reported that the seasonally adjusted delinquency rate for mortgage loans on one-to-four-unit residential properties fell to 7.99% in the third quarter of 2011, the lowest level recorded since the fourth quarter of 2008. While any decrease is good news, don’t get too excited just yet– it’s a decrease of just 45 basis points.

The delinquency rate is an important one to follow because it’s one of the best leading indicators we have for predicting ‘shadow inventory.’ Shadow inventory is the elusive backlog of future foreclosures–that is, homeowners who are inevitably headed towards foreclosure but the paperwork is still going through so the bank has yet to take possession of the house and/or list it for sale. Foreclosure processes vary widely state to state, and it’s notoriously difficult to predict when a property will actually hit the market. Buyers and market bears are always shouting about the huge backlog of inventory coming down the road, dooming recovery progress in the shaky housing markets. Yet here in the DC area we have been waiting years for this alleged ‘tidal wave.’

I wouldn’t hold your breath. First, these delinquency stats have been relatively stable for years, and we haven’t seen the big bump in foreclosures yet in our area–the fact is that our local market (particularly close in Northern Virginia and DC) has remained strong enough to absorb foreclosures and short sales as they come to market. Second, remember that banks control the inventory they take possession of, and they are well aware of the laws of supply and demand. If a bank is trying to recoup as much value as possible, why would they flood the market with inventory, thereby depressing prices? The carrying cost of a property for a bank is minimal–after all, they don’t pay themselves a mortgage–so the only real incentive for them to get properties off the books is regulatory requirements that affect the amount they have to hold in reserves. So it’s a big of a juggling act for banks.

Delinquencies, of course, are tied to unemployment rates: no job = can’t pay the mortgage = delinquency. DC’s strong job market is another reason we don’t see the avalanche here that other parts of the country might experience. But stay tuned…the lack of a budget deal from the super committee could mean serious cuts in government spending in our local market.

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This Month in Real Estate: September 2010

wethmangroupadmin — Wed, 22 Sep 2010 14:01:16 +0000

Want to know how your state ranks in terms of the number of foreclosures? This month in real estate tells you which states have the highest foreclosure rate, plus offers tips on buying foreclosures in your area.

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This Month in Real Estate: Foreclosures Down as Short Sales Become Viable Options

Katie Wethman — Fri, 18 Jun 2010 16:24:47 +0000

April stats for foreclosures are out, and they show a 2% decrease form April of 2009, possibly due to more sellers being aware of short sales as a viable option, and more buyers recognizing that short sales may pose a good buying opportunity.

Short sales are still long, frustrating processes for all parties involved, but if you are part of a program with a proven track record and professional negotiators, sellers can find themselves out from an incredible financial burden, and buyers can find themselves in a great home with a great interest rate mortgage.

If you’re a seller thinking a short sale may be a good option for you, contact us. We are Certified Home Rescue Institute agents, and able to counsel buyers with confidence–this program has a 95% success rate for closing short sales. There are important factors to consider, such as credit score, deficiency judgments, and tax implications. Work with an agent and a program who can counsel you on these topics. We only work with sellers who have been counseled on all of their options, including loan modifications, foreclosures, and bankruptcy, in addition to having been educated on the short sale process.

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Foreclosure Properties: A Good Investment?

Katie Wethman — Thu, 27 May 2010 15:17:23 +0000

The nation’s housing market is bracing for another wave of foreclosures. The past few years saw waves driven by subprime loans, but inventory was partially mitigated by the temporary demand created by the first time buyer credits. Now experts are concerned about the “shadow inventory” that banks allegedly have been holding back, and new waves are potentially on the horizon, this time driven by option ARM loans and owners making the decision to ‘strategically default’ on their severely underwater homes by simply walking away.

If you’re in the market for a new house, you should look at foreclosed homes being held by banks. Here’s why…

Click here to continue reading the article, posted at http://singlemindedwomen.com

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From the Archives: Foreclosure Risks-Bank Addenda

Katie Wethman — Fri, 13 Nov 2009 03:00:02 +0000

I get a lot of questions on foreclosures. How could I not? Some neighborhoods are flooded with them (though some are not…see the graph in my post on Beyond Auctions.) Buyers want to know if they’re a good deal, what the risks are, and how they can get in on one.

I’ve decided to write a series of posts on the risks specific to buying foreclosures—trust me that there are too many risks to put into one post! Some risks can be mitigated, some can be eliminated, but most remain; that’s part of the trade off you make in deciding to buy a foreclosed property.

First, a quick overview on the process. (For a review of how a home moves from short sale to auction to REO, read the post “I want to buy a foreclosure.”) Once a home is foreclosed upon, also known as Real Estate Owned or bank-owned, it is usually listed in the MLS with a listing agent, similar to any other home for sale. It will usually be noted right in the comments that this is a “bank owned property” or “special addenda required.” What is this special addenda?

When you decide to make an offer on a foreclosure, you put together the offer using the standard regional forms, just like any other resale (though not the same as new construction—for those you use the builder’s contract.) You include any contingencies or other negotiables you want—home inspection, seller subsidies, etc. Then you send it off to the listing agent, who sends it to the bank. The bank’s representative may respond right away, they may throw it into a pile to see what else comes in, or they may not do anything. (So controlling the timing becomes a big risk of a foreclosure, but I digress.) Let’s say they get back to you and let’s assume they even agree to all of your terms. They’ll return it all with a copy of their own Bank Addendum. An addendum is simply the legal term for a condition that amends the main contract. Even “regular” resales have a half dozen addenda– for home inspections, appraisals, and to meet jurisdictional requirements. Bank Addenda are written by the bank’s lawyers to protect themselves during foreclosure transactions. Any guesses on which side they favor?

Every bank’s addendum is different, and it’s critical that you read and understand every clause prior to signing it. Because it’s an addendum, which amends the main contract, it doesn’t really matter what you think you negotiated—anything in the addenda trumps the main contract. Think you negotiated an inspection but the addendum says no? Or what if the addendum says you can inspect but not void? The addendum wins the day. A lot of good that inspection does you if the home inspector says the place needs to be demolished by you aren’t allowed to walk away.

Unless you sign the addendum, there’s no deal, so you can still get out if you don’t like what you read. Occasionally, on some clauses, you may be able to negotiate certain clauses, but that increases the likelihood of slowing down the process—after all, some guy in a cube in Idaho (no offense, readers in Idaho) has to get that change sent to the bank’s lawyers to review, and I guarantee that those lawyers have their hands full with all their other foreclosures right now. If you decide to live with the clauses, then once you sign the addendum, the contract proceeds as is more typical.

There are many examples of egregious clauses, but here are a few of my favorites:

- The bank may not own the property and may not be able to go to settlement. You may be required to go to settlement even if the bank cannot deliver the deed at that time.

- The bank may guarantee only insurable title, not marketable title (more on that in another post)

- The bank may give themselves the right to change their mind and walk away at any time up to settlement for no penalty

- There may be easements or restrictions on the property that aren’t recorded; if you find one, the addenda may prevent you from backing out of the contract as a result

There are many more, as these addendum often run about ten pages. Because they are written to apply nationwide, there are occasionally even clauses that are illegal in Virginia!

So read those addenda carefully, and caveat emptor on this foreclosure pitfall. It’s a doozie.

I’ll continue the series with future posts on these other critical risks:

- Lack of control over turnaround and the dependent risks it creates for buyers (and not just your move date)

- Inspections, repairs, and warranties

- Financing complications (Don’t rely on using an FHA loan!)

- Title and deed issues

- Condo/HOA docs

Have another risk you want addressed? Add it in the comments and I’ll write about it.

Are you thinking about buying a foreclosure and want to know the risks you’ll face? Contact me to discuss the risks and some mitigation strategies.

Read the second post in the series, about the challenges in controlling the timing of a foreclosure transaction, here.

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Short Sale Statistics for Northern Virginia

Katie Wethman — Tue, 18 Aug 2009 21:27:00 +0000

I got to wondering today whether more short sales are closing and thought I would share some interesting data I found. All data is per MRIS as of today.

Number of active listings designated “potential” short sales in NoVA* = 607 (# in Arlington = 57)

Number of short sales that have closed in NoVA in past 30 days = 199 (# in Arlington = 7)

Close Price to Last List Price Ratio for Short Sales that Closed = $302,258/$306,505 = 98.6%

Average Days on Market (Property) of Short Sales that Closed = 83 (Highest was 631 days). Note this represents the number of days until they got an offer, NOT the number of days that it took for the bank to approve the transaction. A quick look at the listings that closed in the past 30 days showed “contract dates” of as far back as November 2008, but most seemed to have been put under contract in the March-April-May 2009 timeframe, meaning about 3 month waiting period for bank approval and settlement. As a point of comparison, “regular” contracts tend to settle about 30-45 days after the contract date.

* NoVA = Arlington, Alexandria, Fairfax, Fairfax City, Falls Church City

I have to say that I was surprised that so many short sales closed in the past 30 days. I went back for a few months to spot check and the average seems to be roughly 200-250 closing each month going back to this Spring. This data leads me to believe that not only are banks approving more and more short sales, but they’ve gotten more efficient at that approval process.

Buyers, short sales are certainly not without their own risks, delays, and headaches, but maybe it’s time to put them back on your shopping list.

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State of the DC Area Real Estate Market: June 2009

Katie Wethman — Sat, 13 Jun 2009 13:37:00 +0000

The Spring market is hopping, but some recent changes are making it difficult to predict what’s around the corner. Here’s what’s going on in the local real estate world:

Interest Rates Jump: Mortgage rates took a significant jump in the past few weeks. The short story is that optimism about the economy combined with fears about inflation are pushing rates up. But if you want the long story, you can read more about the relationship between the bond markets and MBS markets here.

Foreclosures and short sales continue to be a very active segment. Banks have finally figured out that the trick to selling foreclosures quickly is to price them ridiculously low and get a bidding war going. It’s not uncommon to have dozens of offers in during the first few days for entry-level price points ($200-300k). Short sales continue to be a source of frustration for buyers, as noted in this good NPR story.

The area’s inventory remains flat (Arlington and DC) to declining (NoVA)

–check out the significant decline in Northern Virginia inventory here.

Case-Shiller is still reporting significant price declines year-over-year, but here’s a good article explaining why, if you read the data more carefully, the news is much less ominous.

New Appraisal Code Scuttles Deals: The new Home Valuation Code of Conduct was implemented in May, and is wreaking havoc with deals. This Code created intermediaries to manage the appraisal process, and some argue that quality has dropped. Many appraisals are coming in low, opening the door to a secondary round of price negotiations in many transactions.

Monetization of Tax Credit: Of significant note to first time buyers is the emergence of programs that will allow a buyer to “monetize” the $8000 tax credit. VHDA has developed a program to structure a second trust of $8000 with no principal or interest payments due during the first 12 months. Details are still evolving, but it is expected that a buyer could use this $8000 second trust as part of their downpayment.

If you are a first time buyer hoping to take advantage of the $8000 tax credit – start your search NOW! The lack of “good” inventory may make it difficult to find something that fits your needs and your price range. Settlements must occur by November 30 to file for the credit, and with the current volume of lending and refinancing banks are backed up. No doubt this backlog will increase for both lenders and settlement companies as we approach November 30 – plan ahead! Contact me to start your search – I’d love to help you!

And finally, just for fun: For all you Arlingtonians and those who want to be an Arlingtonian — check out this rap.

As always, please let me know if I can do anything to help you or your friends with your real estate needs.

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Northern Virginia Inventory Sees MASSIVE Drops

Katie Wethman — Fri, 01 May 2009 14:38:00 +0000

Update 5/9/09: Looks like I’ve got some investigating to do – the final MRIS numbers are published (updated graphs now available at my website here – click on the “Market Stats” in the left sidebar) and they aren’t even close to the “live” data I ran on the last day of the month. Not sure what’s going on — seriously, how can hundreds of listings be not there on the last day of the month but then appear retroactively 9 days later? I’ll look into it and post results here when I get them. The short story is that inventory didn’t drop in most cases–just a tiny increase of about 2% over last month for NoVA, for example. Still surprising but not nearly the big story the initial data hinted at. Contracts are up about 12% over last month, so the buyers are definitely biting! Obviously with an increase in contracts disproportional to the slight increase in inventory, it still indicates a shift in the market, just perhaps not that dramatic a shift as originally indicated.

In the meantime, here are some excellent charts detailing real estate inventory levels that illustrate my points and appear to be using the “live” data just as I had.

Original Post:
This. Is. Big. News. Typically in the Spring (from February through June) we see run ups in inventory as sellers prepare their homes for market. The final numbers aren’t out just yet, but I think both buyers and sellers are going to be shocked by April’s real estate statistics.

Let’s take a look at the Arlington numbers I ran from today’s MRIS (the consortium that owns our area’s multiple listing service.) The spring run up looks like this for January through April: 875 – 925 – 986 ——–and 793 for April! What?! That is the lowest number of homes available since February 2007. A 21% DROP in inventory in Arlington?! During SPRING?

And Northern Virginia as a whole: 7545 – 7811 – 8069 —— and 5435!
A WHOPPING 33% DROP and the lowest number of homes for sale in NoVA since August 2005! Remember August 2005? When buyers were running around bidding things up like crazy because there weren’t enough homes to go around?

What’s going on?? First, buyers are getting it! Low prices, the lowest interest rates in 50 years, and the $8000 first time buyer tax credit have them out in droves. Just in the past week I had 3 of 4 buyers who submitted offers get outbid on properties in various locations.

To add insult to inventory, potential sellers are waiting to put their homes on the market because they don’t want to have to take low offers. Much of the inventory, especially in the suburbs, is “distressed” (foreclosures and short sales) and many are in such poor condition that they will not sell for a very, very long time. So the level of “good” inventory (that is, will realistically sell within the next few months) is even lower than the numbers show. Homeowners who are on the fence about selling don’t want to be lumped in with distressed comps, so aren’t putting their homes on the market.

Finally, the ‘moratorium’ on foreclosures in the first quarter contributed to a lack of new distressed inventory coming on the market. But if there’s another wave coming, it’s not in the pipeline yet: a review of “preforeclosure” filings in Arlington listed just 73 properties, and Fairfax County showed 1000 (a big number, no doubt, but not enough to make up for the 2500 drop in inventory from March to April.)

What are the implications of this?

Buyers: Unless there’s a big wave in May, you’re going to have a lot less to choose from, especially if you want something that is ‘move in ready.’ Less inventory means more competition for the ‘good’ listings — expect to pay closer to list price for those, and be ready to move quickly when you see one you like. Chances other other people are circling it too. Hope for a big bump in the coming weeks – otherwise it may be a tough road if you’re trying to buy before November 30 to take advantage of the tax credit. Typically inventory peaks in June, with another much smaller bump in Sept/Oct.

Get started with your search:
Sign up to attend a free first time home buyer class or search the MLS

Sellers: If you are on the fence about selling, go ahead and get it on the market asap, especially if your home is a good option for a first time buyer. Make sure you put your best foot forward with some sprucing up, staging, multiple photos taken by a professional, a home warranty, and an extensive web presence as part of a comprehensive marketing plan. And it still needs to be priced right, of course. If you’re wondering what the comps are for your neighborhood, contact me or visit my sellers resource center.

Source for all data: MRIS as of 5/1/2009. Data deemed accurate but not guaranteed

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Foreclosure Risks

Katie Wethman — Mon, 02 Feb 2009 02:41:00 +0000

Now that Spring is right around the corner, buyer activity is picking up. There are still plenty of foreclosures on the market, and though there are lots of incentives to buy right now (low interest rates, first time home buyer credits through July 1, and low prices), the risks with buying a foreclosure — as well as the process itself — are significantly different.

(Update: The credit above applies to purchases in 2008–when this post was written. If you are purchasing in 2009, see updated info on the new credit here.)

I’ve provided here links to all my previous Foreclosure (and Short Sale) Related Risk posts here for convenience.

Short Sales vs Foreclosures – What’s the Difference?

Short Sales – Are They Worth a Buyer’s Time?

Risks of Buying a Foreclosure:

Bank Addendum – Always written in the bank’s favor
Timing - Impossible to control turnaround time
Property Condition & Inspections – Unlikely (impossible?) to get repairs made, and careful to retain your ‘right to void’

Title Defects – Be sure to have your own title inspection done!
Financing Complications – Timing and property condition issues combine to create complications with financing, too.

If you’re considering buying a foreclosure in Northern Virginia, DC, or Maryland, or need help starting your home search, contact me.

Related: Search MLS

First Time Home Buyer? Sign up for my free first time home buyer class in Arlington or DC.

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Guest Post: Rehabbing Properties Using the FHA 203K Program

Katie Wethman — Mon, 03 Nov 2008 14:38:00 +0000

Thanks, Cindy Fox of SunTrust, for information on this program which can really help buyers who have found their diamond in the rough! You can find Cindy’s contact information at the bottom of this post.

Looking for a bargain in the real estate market?

Have you seen the perfect place for you and maybe your family – but then the inside of the place has been trashed? Or is simply is older, outdated, and in need of updating and/or repair?

Sometimes you just need to see beyond to cosmetic abuse to the eye, and maybe structural deficiencies, and envision a place after tender loving care – and a lot of tear down, build up and sweat has been applied!

So – you have the vision. Great! Now – how to pay for putting that vision into action to bring to a reality that vision?

There is an option for you! The FHA, which is a part of Housing and Urban Development (HUD), has a program that will help finance the purchase of such a dwelling, as well as the financing of rehabilitation of the house.

203(k) – How It Is Different from Conventional Construction Financing

The 203(k) program is a section of HUD’s home financing guidelines and its primary program for the rehabilitation and repair of single family properties. The program was designed to promote and facilitate the restoration and preservation of the Nation’s existing (and aging) housing stock. Most of the time lenders will only lend money to purchase homes that are complete. The condition of the property must meet certain standards. Under normal purchase transactions (or refinance transactions) properties that are complete and meet a certain property condition provide the necessary collateral for the lender to lend with confidence. Additionally, most loan programs require that if there are repairs, or renovations to be completed, this must occur before the lender will release funds to complete the purchase and close the loan.

Under conventional guidelines, when a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods.

The 203(k) program through HUD was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work.

Eligible Improvements: Luxury items and improvements that do not become a permanent part of the real property are not eligible as a cost of rehabilitation. However, the homeowner can use the 203(k) program to finance such items as painting, room additions, decks and other items even if the home does not need any other improvements. All health, safety and energy conservation items must be addressed prior to completing general home improvements.

How the Program Works: The improvements, repairs, and rehabilitation proposals must be part of the loan package and can be prepared by a builder, or a consultant and show the scope of the work to be done. Cost estimates must include labor and materials sufficient to complete the work.

The scope of the work as presented in the proposal determines the amount of the loan. Usually, an appraiser will evaluate the proposal in conjunction with the current value of the property and determine an “after-improved” value which will determine the amount of money available for the repairs and rehabilitation.

For More Information: For more information on eligible properties, how the program can be used, required improvements, how the program works, and the application process, contact Cindy Fox at SunTrust Mortgage at (703) 464-4345, or email Katie (info in right hand sidebar) for more information.

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