ARTICLES

• FED VOWS TO KEEP RATES NEAR ZERO
• CASH BUYERS ARE KING IN WEAK HOME-SALES MARKET
• WHAT QUESTIONS SHOULD YOU ASK AT THE OPEN HOUSE?
• APARTMENT MARKET TIGHT
• TO rENT OR TO BUY?

August 15, 2011 FED VOWS TO KEEP RATES NEAR ZERO
There has been a lot of talk recently about debt ceilings and credit ratings and major volatility in global stock markets. I think it is easy to get absorbed by the political rhetoric and the nuances of economic policy. But at the end of the day, we always ask, what does this mean for our families and personal finances.

First, any stock analyst will say that treasury yields are inversely related to the stock market. When the Dow or S&P indices rise, investors are pulling funds out of more "secure" investments like treasuries. That causes treasury prices to drop and interest yields to rise. And the converse is also true: when the major stock indices drop, investors flee toward bonds and treasuries causing yields to drop.

For the first time ever, the credit rating for federal debt obligations was dropped from AAA to AA+. In its report, Standard & Poor's, one of the three major credit rating agencies, cited insufficient deficit reduction and political gridlock as the major reasons for its decision. Standard & Poors also downgraded debt related to the federal government, namely debts issued by Fannie Mae and Freddie Mac.

If this were a typical corporate debt or the debt of another nation, the prices of their bonds would have plummeted and their borrowing costs (i.e. interest rates) would have skyrocketed.

That is not what happened last week. Worries about anemic economic growth and lackluster consumption caused investors to do what they always do, find a safe haven for their assets. Gold, currencies, and, yes, treasuries. So the actions of investors actually helped keep interest rates low both for the federal government and any other debt pegged to the treasury interest rates.

It has been an unprecedented ride for markets over the past week, and most financial planners are adopting a wait-and-see attitude. How this affects the housing market is that interest rates are still at historic lows, but these attractive rates have not yet caused many more people to enter the housing market.

The New York Times
It’s Forecast Dim, Fed Vows to Keep Rates Near Zero
The Federal Reserve announced on Wednesday that it will keep short-term interest rates at or near zero through 2013, citing low growth and low risk of inflation. (read more)

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July 7, 2011 CASH BUYERS ARE KING IN WEAK HOME-SALES MARKET
No matter where you are looking for homes, open houses are an efficient way for buyers to see the home and develop relationships with agents.

This week, I would like to discuss a trend we are seeing in real estate transactions: the all cash buyer. Cash buyers are frequently real estate investors taking advantage of depressed prices and a strong rental market. As today's article suggests, this is a national phenomenon affecting even the markets that are struggling most.

The term cash buyer is a bit of a misnomer, though. Some of these investors may provide all of their own cash, but the most sophisticated investors can use any combination of private lending or investment pools in order to purchase homes. They may be buy-and-holding properties for rental income or they may be rehabbing these properties for short term profit.

First time home buyers, especially those in the D.C. and Virginia markets, are often in competition with cash buyers for entry-level homes. The first time home buyer usually does not have the credit experience of the investor, and the first time home buyer is almost always subject to the ever-tightening credit rules of retail mortgage lenders.

Investors may waive certain home purchase contingencies such as appraisal or home inspection, especially if the investor is tearing down or rehabbing the property. The retail bank has become much more involved in the home buying process, so a bank that would have lent on a home without a home inspection would never do so today.

The all cash buyer or investor's contract is relatively short and sparse in its terms in comparison with the first time home buyer's contract. The home buyer's contract is typically a form developed by the local board of realtors and is full of clauses and addenda intended to protect the purchaser. Also, the purchaser may have statutory protections that investors may not enjoy. In comparison, the cash buyer's contract is much more straightforward only two or three pages.

Since investors may waive appraisals and termite inspections, they tend to be able to settle faster than someone buying the home as a residence.

This is not to say that the first time home buyer is out of luck. An investor may rely too much on his three page contract or the ability to settle in two weeks, but may also underbid the property. Also, even though everyone--cash buyers and residential buyers alike--wants a deal, investors are much more likely to be met with skepticism than residential home buyers Sellers fear that they are leaving money on the table when dealing with real estate investors, so a home buyer may be in luck.

Finally, home buyers are much more likely to have an attachment to a property and are more likely to make an emotional connection with the seller. A seller, especially a seller who has lived in the property for a long time, may be more likely to sell to a person who will occupy the home as their principal residence.

I know from personal experience what it is like to lose out on a contract on a property. I highly recommend a buyer who has submitted a contract write a personal statement to the seller explaining their interest in living in the home and being a member of the community. Use the position of being a first time home buyer as an advantage and you may be surprised at the result.

USA Today
Cash buyers are kings in weak home-sales market
Julie Schmidt discusses there has been an trend in all cash purchasers of homes especially in hard hit areas like Phoenix, Florida, and Las Vegas. On a positive note, however, the high ratio of cash purchasers does indicate investor confidence that home prices have hit a bottom and deals can be made. (read more)

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June 15, 2011 WHAT QUESTIONS SHOULD YOU ASK AT THE OPEN HOUSE?
The uncertainty of employment, temporary job transfers to the area and tightening lending standards are all causing potential buyers to sit out the current market and rent for the time being.

This done not mean today's renters will never become buyers in the future. In fact, when I hold homes open, many visitors tell me they are not in the market right now but are looking to purchase sometime later this year or even in 2012. But even if you are not in the current market, taking the time to check out some open houses is still a great idea for many reasons.

First, and obviously enough, potential buyers have to get in the homes. Curb appeal may be deceiving as are the professionally taken photographs and online home tours. Even if you are holding off on buying for another year, don't fall in love with a neighborhood until you have seen the floor plans and relative size of homes. There are definite exceptions to the rule, but for the most part houses in many neighborhoods were built by the same builder at around the same time, so seeing a home in a particular neighborhood should give a good idea of what you may encounter at other homes in the area as well.

Second, it is critical to get in front of real estate agents. Real estate agents are not simply in the business of showing homes to would-be buyers. They have been and still are an integral part of the home purchase and selling process. In any given real estate transaction, agents juggle dozens of tasks and work with many different service providers (lenders, inspectors, contractors, appraisers, and so on).

So if you are looking for an agent, talk to the agent holding the home open. Think about it as a quick interview. See if the agent is engaged and is listening to your needs. Note if the agent is asking follow up questions. Remember this could be the person navigating through the transaction on your behalf. Even if you are not interested in the particular home being held open, this agent has access to thousands of other properties, and the more engaged the agent is to your needs, the more likely that agent will help find the home for you.

Also, I encourage potential buyers to spend some time at the home being held open. Ask about the age of the mechanical systems and any improvements that have been made to the home. See if the agent will allow you to take a few of your own pictures for later reference. Agents should have brochures for you to take with you. Write down your thoughts on the brochure as you are walking through the home.

As I said last time about finding a rental home, you may want to reassess based on what you saw. After spending a day checking out listings online or visiting properties in person, you may find out that you would rather be in a different neighborhood or want home of a different size or floor plan. Such an experience is very common, but don't get discouraged. If you have any questions about your search, feel free to let me know and I can point you in the right direction.

MSN.com
What questions should you ask at the open house?
Today's article comes from the Real Estate section of MSN. It discusses questions you may want to ask while visiting an home being held open. In addition to learning about the property itself, consider the way the agent is answering the questions. Ask yourself whether the agent is engaged and interested in assisting you in finding your new home. (read more)

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May 19, 2011 APARTMENT MARKET TIGHT
Let's say you decided to hold off on buying for right now and chose to rent for a year or two.

The rental market in the Washington area is extremely active especially in Northern Virginia. To locate any rental property especially ones in high demand neighborhoods, you may have to use multiple sources and be willing to negotiate. Obviously, I recommend future renters work with an agent to locate a rental property. Agents should be familiar with the neighborhoods and the development and should be able to act as a reference for home services.

When looking for a rental, there may be additional prospective tenants interested in the same property. There may even be other applications on the same property, and the landlord or management company has not yet decided on a tenant. With competitive bidding, prospective tenants need to make his or her application as strong as possible. Check your credit report in advance to see if you need to resolve any credit issues. Or you may want to consider a longer rental term or even a slightly higher price to entice a landlord.

Also, especially in neighborhoods where rentals are scarce and the tenants are plentiful, I highly recommend using websites such as Military by Owner and Craigslist. Clients of mine have had great success with finding properties at these sites. But please keep in mind that when you are looking for a rental, be careful in giving too much personal information or sending security deposits on unseen properties. More on this in another piece.

And just like purchasing a house, I recommend that before running around the "hottest" neighborhoods, take some time to think about what you want or don't want in your new rental. Do you want to rent an apartment, a condo, a townhouse, or even a detached home? Do you want a home for yourself or do you want a roommate to split costs? All of these options exist, and each presents opportunities as well as pitfalls.

Even after going out to some listings, you may want to reassess based on what you saw. After spending a day checking out listings online or visiting properties in person, you may find out that you would rather be in a different neighborhood. Such an experience is very common, but don't get discouraged. If you have any questions about your search, feel free to let me know and I can point you in the right direction.

Washington Business Journal
Apartment Market Tight
Speaking of the tight rental market, today's article is from a few weeks ago, but I find it to be extremely timely and relevant to current conditions. In his short article, Jeff Clabaugh of the Washington Business Journal cites the National Multi Housing Council in its release of its quarterly Market Tightness Index, which measures vacancies and rents, and says the index rose to a record 90 from 78 the previous quarter. Any reading in the index above 50 indicates improving market conditions. (read more)

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May 2, 2011 TO rENT OR TO BUY?
Today's piece comes from the Real Estate Section, of Saturday's Washington Post. Elizabeth Razzi's article "To Rent, or to Buy?" discusses a lot of the process that goes into whether a person should rent or purchase a home. There are the traditional factors such as personal economics and duration of staying in the area, but there are factors specific to being in the Washington area.

As we are witnessing in this metropolitan area, it is clear that there are two separate markets. The purchasing market is witnessing a sharp decline in contract activity from this time last year, whereas the rental market has been exceptionally strong. There is very strong competition in the Alexandria and Arlington markets with multiple applications being received on rental properties within days of listing.

Of course, all of this needs to be taken into account when making the rent or buy decision.

The Washington Post
To Rent, or to Buy?
(read more)

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