Best Opportunities for Buyers are Now!

Heads up folks, the great "window of opportunity" may be about to close.

The past few months have presented buyers with a great chance to snap up bargain homes. All at once, we have seen:-

• falling home prices, back at least to 2003 levels
• record low mortgage rates encouraged by Government intervention
• the introduction of an $8,000 First Time Buyer Tax Credit

The result has been a significant increase in activity in the past couple of months, though this has been largely focused on the sub-$200,000 price range, and in particular on foreclosures which have accounted for over 2/3 of the sales so far this year in Warren County. This activity has brought the sub-$200,000 inventory to less than 7 months' supply, which is now a balanced market and no longer a seller's market in this price range.

But here's where things stand as we move firmly into the heat of the summer:-

Home prices appear to have bottomed, though many over priced homes on the market still have to come down to more realistic levels. However, buyers waiting to see a further fundamental drop in sale pricing levels are likely to wait in vain.

Mortgage interest rates may be rising. Over the last week of May, the government's sale of 10 year Treasury Bills (to help finance the stimulus) resulted in yields increasing by 1/2%, and mortgage rates, which are closely linked to 10 Year Treasuries, also increased by almost 1/2%. The market experts believe this is just the start of an inevitable steady rise in rates as a natural response to the huge supply of money into the market and the resultant threat of inflation down the line.

The Tax Credit will end! If you are a first time buyer (defined as someone who has not owned a home during the previous 3 years), you also need to be aware that you have to complete your purchase by November 30, 2009 to qualify for the First Time Buyer Tax Credit. A recent government announcement allows the credit to be "anticipated" and used towards the downpayment, but this still all has to be completed by November 30. That's less than 5 months, and that time soon disappears when you are going through the process of looking for and buying a home.

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So now is the time to act, before you are looking over your shoulder wishing you had done so earlier. I can help you find a home, and talk you through the process if you are not familiar with it. Here's how to start . . .

• browse for listings on the market at my home search
• read more about the First Time Buyer Tax Credit
• read more about foreclosures
• ask me for an up to date foreclosure list for Warren County.
• or just send me an email or call me on (540) 671-1367

Market Update

We have been stuck in a range of around 25 to 30 sales per month for some time now in Front Royal/Warren County, but have seen the median sale price steadily fall due to the high level of foreclosures. Of the 27 sales in February, 22 (81%) were foreclosures. To put it another way, only 5 homes in regular private ownership sold in February, out of around 350 privately owned homes on the market. So far this year just 5 homes have sold for over $300k, and none over $400k.

The first chart shows active listings, sales, and months supply over the past 3 years. Click on the chart for a larger image.

The second chart illustrates the falling median sale price (green) and the Days on Market (purple) for homes that sold. Click on the chart for a larger image.

Confidence remains the principal obstacle to an improving market, and much of that depends on the general economy over the coming months. However there is no doubt that an improvement in activity will not bring about an increase in prices for a long time (my guess is 3 or 4 years). Why? Because there is still a significant over-supply of homes on the market (nearly 16 months supply), along with a large reserve of wannabe sellers waiting in the wings for a better opportunity to sell, who have either given up over the past 12 months, or who haven't yet put their home on the market.

Pricing of listings remains absolutely paramount. Most of the foreclosure companies get it right, which is why their homes sell. Most private sellers are still getting it wrong, as they cannot come to terms with the price necessary to achieve a sale.

Catching up over the past 18 months

Well, I'm ashamed to admit that it's almost 18 months since I last posted to my blog, but I am committed to making up for that with regular posts from here on to inform readers about the local market in and around Warren County, Virginia, and other local and real estate issues.

So to start to catch up, I looked back to where we were in August 2007 when I last posted. Wow! what a dramatic sea-change we have seen. Where were we then? In contrast to what many of my colleagues and the media in general were saying at the time, I was stressing how the market was drying up. I was quoting 40 to 55 sales per month (down 50% from peak) in Warren County, and a 12 month supply of homes. We had just begun to see the initial "credit crisis" with problems with some mortgage lenders, but little did any of us anticipate what was yet to come.

Since then, the housing market has steadily dwindled, and more rapidly so over the past 9 months or so. Front Royal/Warren County has for some time been seeing only 25 to 35 home sales per month, with an overall supply of about 18 months. Half of those sales are typically foreclosures, with a lot more being "short sales" where the bank is losing money and cooperating with a voluntary sale by the owner without foreclosing.

The backdrop to all this has been the implosion of the "sub-prime" mortgage market, leading to problems with securitization of mortgages in the secondary market. The tightening of credit, and subsequently the illiquidity and failure of several financial institutions, has led to a global economic crisis which governments around the world are fighting to underpin, with far reaching support and stimulus packages (such as the "TARP" in the US) including huge national investments in banks. At the same time, a few weeks ago it was confirmed what anyone already knew unless they were in denial - that the USA was in a recession which had officially started in December 2007.

The fallout from all this has been a rapid decline in consumer confidence, with increasing job losses as employers pare their costs to meet falling demand, and a fear of the widespread talk of a another depression like the 1930's.

House prices in this area (those that sell, not the "hopes and aspirations" of some of the asking prices) are now back close to 2003 levels, and with interest rates at record lows, there are some great opportunities for qualified buyers. Of course the opposite can be said for sellers - the chances are that anyone who bought a home from late 2003 onwards with 100% or near-100% finance, or who refinanced a substantial part of their equity since then, is unable to sell that home and clear their mortgage from the net proceeds.

The past 18 months has seen a dramatic and traumatic turnaround in fortunes. In my coming posts, I will try to make a little more sense of how it impacts the housing market locally.

Two New High Schools

September 4 sees two brand new High Schools opening their doors to Warren County students, who may for once be looking forward to a return to school after the summer :). . . Both schools are completely new buildings with the latest technology, and with new playing fields. They will intially take students in grades 8 to 12.

Warren County High School, still home of the Wildcats, is moving from its present 67 year-old site, to Westminster Drive on the east side of Front Royal. It will serve broadly the north east, east, and south east areas of the County (Hilda J Barbour & Leslie Fox Keyser Elementary Schools, plus the route 522 South corridor from Ressie Jeffries ES).

Skyline High School has been built on a green field site off route 340 just south of Front Royal. SHS will be home to the Hawks, and will serve broadly the north, west, & south of the County, drawing from A.S. Rhodes ES, E.W. Morrison ES, and Ressie Jefferies ES (apart from the route 522 South corridor).

The School Board have produced a useful map showing the school zones for the new high schools and the elementary schools. You can view it here (you can zoom in for more detail).

The two new high schools mark the completion of Phase I of Warren County's 10 year school plan. Phase II will first see the old high school site at Luray Avenue refurbished and reopened as the middle school in 2008, then the current middle school on West 15th Street remodeled. The result in 2009 will be two fully refurbished middle schools taking grades 6 to 8, and feeding directly into their respective high schools for grades 9 to 12.

Phase III of the 10 year plan will see a new elementary school built, further details yet to be finalized.

Market Update & Mortgage Turmoil

Back in March I wrote that we had a quiet market. Now we are getting well through the summer, it is time to take a step back and review things. And it's not a pretty picture for sellers. Hopes of steady improvement have long since evaporated, and we are looking at a market which has already "peaked" for the summer, even though that peak was way below last year's levels.

All summer the number of homes on the market in Warren County has been hovering around 650, and as I write there are still 655 active listings, and just a further 57 homes under contract. With sales over recent months running around 40 to 55 per month, there is a 12 month supply of homes on the market, compared with around a 2 month supply before the market began to turn in July 2005.

The chart shows the trend since January 2005, with the rapid growth of active listings (blue), decline of sales (yellow), and the trend in the supply of homes on the market (red). Click on the chart to see a larger image.

The latest cause for concern is the turmoil in the mortgage market. With the increase in foreclosures, mortgage quality has become a big concern in the wholesale market where mortgages are "sold" and bundled as mortgage bonds to the investment funds (such as the one looking after your 401k). The result is that some lenders have been unable to bundle and sell their loans on, and as a result have been unable to lend new mortgages - effectively having to close shop.

Lending criteria across the board have been progressively tightened, and many people who could get a loan a few weeks ago are now unable to; many who could get 100% finance may now have to put 10% down (which may well count them out); and those looking for "no doc" or "stated income" loans may be looking in vain. In a nutshell, good quality credit is more important than ever (perhaps it always should have been?), and most of the "creative" lending has gone out of the window.

If you were pre-qualified a few weeks ago with your lender, check again before you do any more house hunting. You need to make sure that you are still on the same page with the amount that you can borrow, and the terms attached to it.

Build Them & They Will Shop!

Exciting times for Front Royal shoppers - the new Target store opened last week, along with its in-house Starbucks and Pizza Hut Express outlets. Also now open is Famous Footwear. Over the next week, Staples (Aug 4) and Petco (Aug 6) will open their doors. And very shortly, we will see TGI Fridays, Fashion Bug, GNC, Radio Shack, and Game Stop, among others, all in the Crooked Run Shopping Center.

On the other side of route 522, the huge Lowes store is taking shape. Beyond that, the future Wal-Mart is about to spring up from its leveled site, and the rest of the Riverton Commons infrastructure is taking shape amid a flurry of activity. I drove around there earlier today to take a couple of photos, and was running the gauntlet of many large vehicles, concrete trucks, earth movers, and swarms of construction workers, surveyors, and engineers.

On a sadder note, isn't it a shame to see what has happened to the home in the last picture below? A handsome brick colonial of over 3,000 sq.ft. on a nicely landscaped 5 acres, this home once looked out over gently rolling land and a 2-lane route 522 wandering north towards Winchester, with the mountains as a background. Now it looks down on all this development, with a bird's eye view of Lowes and a busy intersection which at one point is 8 lanes wide. I guess that's the price of progress.

What is a Sanitary District?

I often get puzzled looks from buyers when I explain that a home in Warren County is in a Sanitary District. What is that?

First, it is nothing to do with sanitation, in fact I have no idea where the term came from. It is basically a subdivision where, at the owners' request, the Circuit Court has conferred Sanitary District status. The "HOA Fee" is built into the real estate tax bill, and paid with the real estate taxes, then passed on to the HOA by the County.

As a result:

- there is a better rate of collection for the HOA, as owners are less likely to default on real estate taxes than HOA fees (and the County can impose a real estate lien on unpaid Sanitary District fees)

- the net cost to the owner is lower, as the payment is classed as real estate taxes and therefore normally deductible for tax (but don't take my word for it, check with your tax advisor!)

- as the payment is built into real estate taxes, it is normally part of the owner's escrow payment when he pays his mortgage

The fee is set each year by the County as part of the budgeting process, at the same time as the rate for real estate taxes. The amount varies from one Sanitary District to another, and depends on the HOA's own budget, which has to be submitted to the County.

There are currently eight Sanitary Districts in Warren County. The larger and better known ones are High Knob, Shenandoah Farms, Blue Mountain, Shenandoah Shores and Skyland Estates. The other three are Riverside, Cedarville Heights, and South River Estates.

For more detailed information, go to the following links:
   - more background, legalities, etc - Warren County Sanitary Districts
   - current Sanitary District fees - Current Sanitary District Fees

New Shopping Centers for Front Royal

Anyone who last traveled route 522 north of exit 6 of I-66 a couple of years ago, will be astonished at the changes now taking shape. It started with the creation of the Blue Ridge Shadows championship golf course, now with a Holiday Inn & conference center being constructed alongside the highway. But more significantly, we are now seeing the development of two out of town retail parks, a first for Warren County.


Crooked Run Shopping Center (on the west side of 522) and Riverton Commons (on the east) have been in the development stage for some time, but will come to life with the opening of the new Target store this coming July on Crooked Run, followed closely by PetCo, Staples, Fashion Bug, Famous Footwear and TGI Fridays. By early 2008, Riverton Commons will be welcoming Wal-Mart, Lowes and others, which so far apparently include several eating places like Crackerbarrel, Chic Fil-A, Checkers and Starbucks. Yes, Front Royal, Virginia will have arrived - we will have a Starbucks

What's more, a third retail park - bigger than these two combined - is in the pipeline off Rockland Rd, a mile or so further north. I understand it will be a couple of years before we see major developments there, but you can probably begin to think of some of the major retail names who will no doubt be looking for a share of the spoils.

Virginia Wine & Craft Festival

Don't miss the 21st Annual Virginia Wine & Craft Festival, to be held Saturday May 19, 2007 in historic downtown Front Royal, in Warren County, Virginia.

The main downtown area of Front Royal - The Commons, Chester St, & East Main St - is cordoned off to leave a delightful area for visitors to roam and mingle. Wine producers and skilled crafters come from all over Virginia, and in addition there are many local Warren County businesses and organizations represented, and lots of fun, games and rides for the kids.

Musical entertainment is at the gazebo in The Commons, and on the Court House lawn. At the gazebo will be popular local Beatles cover band Glass Onion (from 10 am to 1 pm), and Texas Chainsaw Horns (2 pm to 5.30 pm), a band blending soul, funk, rock and country. In front of the Court House will be Bill Dykes & The Beatnik Night Players (bluegrass/jazz variety) from 12 pm to 2 pm.

Admission is $12 in advance, $18 at the gate - for that, you get all the wine tasting you want. If you don't want to join in the wine tasting, admission is just $2, with kids aged under 6 free.

Advance tickets may be purchased from the Warren County Chamber of Commerce, call (540) 635-3185.

This is a great event with a fantastic buzz - if you are new to Warren County or haven't been to the event before, make it a priority!

A Quiet Market in Warren County

Yes, we all know the market has been tough over the past 18 months, with prices falling in Warren County and surrounding areas during the last 8 or 9 months of 2006 in particular. The indications are that prices may have now leveled out, and with mortgage rates staying low, there has been cause for cautious optimism that the buyers will come out of their shells as they begin to feel more comfortable.

But what I am now seeing is a series of new listings coming on to the market with inflated prices, suggesting that the sellers believe we are about to embark on a bouyant market. Have I missed something? Please tell me, where is the evidence? Year to date unit sales in Warren County are 18% down on this time last year, and homes under contract are a whopping 38% down.

Even more worrying, there are again nearly 500 homes on the market in the county (492 in fact, 37% up on last year and more than three times the number from 2 years ago ), and I'm looking out at several more inches of fresh snow as I write, so I'm sure we are still in the winter. Based on the sales in the first 2 months of the year, that is a massive 15 months supply. If you want your home to sell, it has to stand out against the many others that it is competing with. It is not a market for "let's try it at that price and see if we get any bites".

So yet again, I am going to get on my soap box and preach. Here goes . . . it doesn't matter how much you WANT for your home, or how much you NEED for it. The market will dictate the price, and if you don't show willing to meet the market (with a realistic asking price), then the market won't come to meet you. Overpriced homes will not be shown, or at best, the wrong people will be viewing the home, as they will be expecting more for their money.

It has been a hard lesson for many over the past 18 months, but it seems there are still those who haven't learned from it. So come on folks - you know who you are - get real, and price your home as if you mean to sell it. You do want to sell it, don't you?

Dangerous "Expert" Tips

I just had to comment on something I saw on "Today" this morning on NBC. The channel's proclaimed "real estate expert" Barbara Corcoran was interviewed by Meredith Viera, and gave out some tips for Buyers. There were several tips which in my mind were quirky, but here is the one that frightened me . . . once I heard it, I backtracked on my Tivo to make sure I didn't hear it wrong, and noted down her words. This is what she said, verbatim:-

"Offer all cash if you are pre-qualified for financing. Most people know they can get the financing, and then go in and say their bid is based on financing. It doesn't make any difference. What you should be doing is say 'I'm an all cash buyer'. You've got the financing - go in as an all cash buyer".

Oh dear!! Please don't EVER think of doing this, and don't try to encourage your Realtor to do so either. If you intend to support the purchase with finance, then you should be stating the fact in the offer, and making the offer conditional upon that finance. Why? Because (1) it is a material fact, and by following Barbara Corcoran's advice, you (and your Realtor) would be in great danger of misrepresentation; and (2) because if for any reason you ended up unable to get your finance (for instance, you lose your job?), the inability to raise the funds would be no defense, and you would be in default on the contract. This would risk your escrow deposit at best, and leave you being sued at worst (Please note: I am not a lawyer, so this is a personal opinion only - if in doubt, take professional legal advice).

It does worry me when people speak on TV to a large audience that regards them as "an expert" on the subject, but then give advice that is ill-conceived, misleading, or downright dangerous. Let me assure you - the person who knows best how to help you with purchasing or selling real estate is your Realtor, and your Realtor alone. Not your relatives, neighbors, work colleagues, and - worst of all sometimes - "experts" on TV!

Talking of which, I had a settlement yesterday on a property on High Knob, here in Front Royal. As we were doing the final walkthrough, Carson, the buyer, said to me "I've been worried because everything has gone so smoothly, yet everyone kept telling me about all the problems and nightmares that were going to happen". No problem Carson, you were in the hands of my excellent recommended mortgage guy Adam Huddleston, owner/broker of Integrity Home Mortgage; and of course in the hands of an experienced Realtor who has sold over 300 properties in and around Warren County, Virginia, over the past seven or so years. Experience counts for a lot.

Welcome to the New Year

A Happy New year to everyone. I want to take this opportunity to thank all of my clients of the past year, who have helped me to achieve sales of over $16m during 2006. This was significantly my best year ever, despite the downturn in the market which affected the whole area, not just Front Royal and Warren County.

The market is tough, but don't let anyone have you believe that it is a disaster. What we have seen is effectively a return to a "normal" market where sellers have to put their best foot forward to make their home as saleable as possible, where correct pricing is paramount, where Realtors have to work harder (and sellers should expect them to) to maximize the promotion of their listings, and where buyers expect to negotiate on price and terms. Above all, where it is normal for a home to be on the market for several months before it sells.

That is all a far cry from 18 months ago, when sellers and Realtors could get away with the minimum work, and where buyers had no choice but to accept the prices being sought - because if they didn't, then someone else would take it from under their feet while they were thinking about it.

The age of reality has set in, and unfortunately some sellers still don't "get it"; their homes will remain on the market unsold. Some Realtors also continue to think that listing a home in the Multiple Listing Service, and perhaps a homebook or two, is sufficient to get it sold; their business will dwindle. Homeowners are coming to appreciate the value of a comprehensive marketing plan, combined with a high profile website that is easily found in the search engines, and that provides extensive information for the buyers including plenty of quality pictures and virtual tours.

Did I mention that I do a great job of marketing a home? :) If you're thinking of selling your home (or have it on the market, but are unhappy with your present arrangements), check out my Featured Listings page, and give me a call to talk things through.

Latest Local Market Report

I have just released figures for November 2006 for Warren County, Va, including the present market position as at December 6, 2006. They can be seen on the right hand column of my Newsletter.

Tax Assessments Stir Emotions

There have been some strong emotions over the new tax assessments, which arrived in owners' mail boxes a couple of weeks ago. Warren County likes to do things differently - unlike most counties, real estate taxes are paid annually in arrears as one lump sum, and values are only reassessed every four years. Also unlike most other counties, it has previously not made much of an attempt to get close to market value, so owners have become used to seeing tax assessments way below their property's true worth.

Suddenly however, the numbers hitting people in the face really are market value - and in some cases higher (much of the work was done earlier, before the drop in prices over the summer and fall). I have had a lot of calls and emails from past clients, asking for help with 'comps' as they want to appeal their assessment. It's strange how most people think their home is worth more than it is when they want to sell, but feel the value has been over-stated when they get a tax assessment :)

But it really doesn't matter as long as everyone is being treated equally with a 'level playing field'. It seems that assessments have increased on average around 90%, but that doesn't mean that real estate taxes will go up 90%. Instead, the county will be fixing its 2007 tax rate in May next year, and will adjust the rate down (currently $0.82 per $100, or 0.82%) to compensate for the increased assessments, subject of course to the annual increase that they are looking for (in 2006 the rate increased from $0.79 to $0.82).

A 'public memo' was released November 15 by Doug Stanley, Warren County Administrator, explaining all this - click here to view it. Good job Doug! But it's a pity that this couldn't have been released before the assessments were published, so that people were forewarned, and had time to get their minds around what to expect. I suspect that may have reduced the number of people appealing their assessments over the past couple of weeks.