It's been kind of quiet here on LoudounScene.com due to the holidays, family gatherings, lots of cooking and cleaning and work (yes, buyers are still out there buying and homes still sell during the holidays). Hopefully you, like myself, had a good month and a chance to take a little break from the daily grind over the last week or so.
But that break is short-lived and it's back to the daily grind… Several posts will be coming out right after NYE. They will discuss the Loudoun County housing market including inventory/new listings and buyer demand/home sales numbers and trends. There will also be a 2008 Loudoun County housing market "year in review" post.
And keep an eye out for a post about a mortgage scam that homeowners should keep an eye out for – it's spreading throughout the country and has made it to Loudoun.
Hope everyone is enjoying their holiday season and see you in 2009!
Hat tip to Sellsius
2009 Loudoun County residential property assessed values are estimated to go down an average of 12.8 percent, according to a Jack Brown, Economist for Loudoun County, during a presentation he made at the DAAR Economic and Housing Forecast Summit.
Mr. Brown did say that these were preliminary estimates from the Loudoun County Assessor's Office and that they could change. But I doubt the average percentage drop will be much different once the 2009 assessments come out early next year.
Wonder what the Loudoun County tax rate will end up being with a 12.8 percent drop in assessed values…Loudoun residential taxes are already the highest in Virginia.
Many of you already know about the economic woes that Loudoun County is facing - a budget deficit of $176 million for 2010, the possibility of not being able to issue municipal bonds and running out of money for projects. But do you really know "why"?
Here's what Jack Brown, Economist for Loudoun County, had to say about "why" during his presentation yesterday at the Dulles Association of REALTORS Economic and Housing Forecast Summit:
- Loudoun building permit revenue down to $8.1M in 2008 from $14.9M in 2005
- 2009 residential property assessed values are estimated to be down 12.8 percent from 2008 (flat for commercial properties)
- Loudoun hotel revenue is up from 2007, but is expected to weaken in 2009
- Increase in international travelers made up for decrease in domestic travelers at Dulles Airport, but weakened over the last two months and is expected to weaken in 2009
- Auto registration way down from 2007
- Loudoun sales tax had significant growth from 2007 to 2008, but will be flat from 2008 to 2009
- Low home values good for buyers, but bad for county revenue
- Possibility that Loudoun will reduce workforce in 2009
- Loudoun did not qualify for money from Bush's Housing Recovery Act of 2008
- Loudoun "Alt-A" and "Option ARM" data and numbers have not been closely looked at
- Loudoun is working on getting grant money from Virginia, but it'll be tougher than expected
Is $176M on the low side?
The $176M budget shortfall estimate was back in the summer of this year, but many of the current numbers and statistics listed above are worse than what Loudoun County may have previously estimated and taken into account.
In addition, the concept of "Alt-A" and "Option ARM" loans resetting and bringing on future foreclosures, short-sales and downward pressure on home values was probably never factored into the equation. I say this because all three economists that spoke at the Economic and Housing Summit yesterday (including Jack Brown) couldn't comment on the topic because they hadn't thought much about it nor analyzed any such data.
Ahhhh..the $64,000 question, "What's the Loudoun County housing market going to do in 2009?" Well, I just got back from the 3rd annual Dulles Area Association of REALTORS Economic and Housing Forecast Summit to talk about just that. The purpose of the summit was to review current national and local Loudoun County economic and housing market conditions and hear 2009 forecasts (and beyond) from respected economists.
There were three economists who spoke at the event, each giving their own take on things. They were,
- John McClain – Center for Regional Analysis, George Mason University
- Jed Smith – Managing Directory, Quantitative Research, National Association of REALTORS
- Jack Brown – Economist, Loudoun County Government
What happened and why…
All three were pretty much in agreement with what happened and why. The usual culprits and names were brought up:
- Loose lending guidelines
- Highly leveraged economy
- Mortgage-backed securities and liquidity issues
- Weakened lending institutions
- Excessive spending and unrealistic expectations
- Decline in household wealth (housing prices, stock market, etc)
Over-supply of homes
Current economic and housing market conditions…
All three spoke about how the DC metro economy, including Loudoun County, continues to be better off than most other places in the country. They cited overall job growth in the area and that the jobs being lost were being replaced by higher paying jobs, which is better for the local economy (more household income means more money to spend on consumer goods, higher tax revenue, etc). They also agreed that the supply of homes has come down and has plateaued while demand has increased - a good thing.
Another main point they agreed on was that things could be worse. Not only are we better off than a lot of other places in the US, the numbers and overall economy were much worse during the Great Depression and other times since then. We're still at about 93 percent employment and the folks who bought their homes about 7 years ago or later should still be up in their home's value.
They also said that one reason why it's not as bad is because the Federal Government stepped in. Personally, that worries me because we're putting all of our "recovery eggs" in the "Fed basket" – one wrong move and it could all collapse right on top of us. (Hopefully, our country's leaders and economists are smart enough to know what they're doing and not let that happen)
2009 (and beyond) Loudoun County economic and housing market forecasts…
Though they agreed on a lot of things, there were some differences in their forecasts. One economist said that we're looking at a recovery beginning in the summer of 2009. Another said that it may be later in 2009. One wouldn't really comment as to when, but talked about what signs to look for to see the recovery coming.
Though the DC metro area including Loudoun County is better off than most of the rest of the country, I'd say that the summer of 2009 is an extremely optimistic outlook. Even the later part of 2009 seems a bit optimistic. In reality, we still have a bunch of foreclosure inventory to get through and I think there may me a second wave coming soon.
They all said the numbers were getting better or at least slowing their increase. This includes "sub-prime" loans, many of which have already reset. But, none of them could comment about the "Alt-A" and "Option ARMs" that are just now starting to reset and may have a similar negative effect on the housing market as "subprime" loans have over the last few years. (They said they're "working on gathering Alt-A and Option ARM data as we speak")
I'd sum up the economic and housing market summit in a few sentences,
- We may know where we are, but we're not sure exactly where we're headed nor when
- Though things are bad, they could be worse
- The economists were moderately optimistic about the Loudoun housing market in 2009 and 2010
- They should have looked at all the data before making a forecast
We'll see what happens…
Changes to FHA guidelines going into affect January 1, 2009 will make it more expensive for borrowers to use FHA financing.
Current FHA guidelines require a borower to make a 3 percent total investment in a home purchase. A little more than 2 percent is required to go toward the down payment and the balance can go towards closing costs.
Beginning January 1, 2009, the minimum required investment will be 3.5 percent and the whole amount must go towards the down payment. This means that all of the closing costs will be required in addition to the 3.5 percent down payment.
There are also changes being made to the FHA streamline refinance program. For a complete list and explanation of those changes, check out this blog post over at fhaloanadvice.com.
The 30-year fixed-rate mortgage rate averaged 5.47 percent with an average 0.7 point for the week ending December 11, down from 5.53 percent last week and 6.11 percent a year ago. The rate hasn't been lower since March 25, 2004, when it averaged 5.4 percent. Great news, right?
It definitely is if you're a home buyer. But you may not be as pleasantly surprised if you're trying to refinance.
Why is that? Because rates on refi's are higher than those for home buyers, even if you have substantial equity in your home and great credit. That means that your new neighbor who just moved in got a 5.5 percent rate while you were offered between 5.75 and 6.0 percent for your refi.
"Absurd!" Perhaps. But it's the reality of the times. There's a good post over at Bloodhound Blog that touches upon some of the reasons, which include the fact that lenders hate refi's due to their "nebulous valuations".
And think about it…those who are able to refinance already have equity built into their homes (you have to in order to refi) and are probably in a better financial situation when it comes to their home than those who can't refinance due to being "upside down". The people in the better financial situation are not the ones that the lenders or the Feds are worried about.
Lenders and the Feds are worried about those who are in financial turmoil and can't refi nor sell their house for more than what they owe on it. And they care about getting "fresh" loans and money out to home buyers in order to lower the inventory, keep the lenders afloat and stimulate the housing market and overall economy.
In order to to do that, they're sweetening the deal to home buyers, not those who are financially stable and have equity in their homes.
Unfair? If you're someone who has great credit, equity in your home and just wants to save a few bucks every month to put into savings to spend on goods/services (all of which help you and the overall economy), you're probably saying,
"Yes! Why should I have to pay a higher rate than someone who can only put 3% down and has worse credit than me?!"
But, if you're someone who wasn't able to buy until recently due to "inflated" home prices or higher rates, you may be saying,
"No, it's not unfair! It's about time I'm able to buy something! I, too, will someday have equity in my home, savings in the bank and be in the same position as my well-off neighbor, which will help the overall economy down the road."
There's two sides to every argument and I'm not here to judge whether one is right or wrong. I'm here to pass on the information, offer some personal insight as to the reasons and let you come to your own conclusion. But, whatever your stance is, get used to seeing a difference between home buyer rates and refi rates because many are saying that this pattern will continue through 2009.
If you've ever bought a new construction home from a builder in Loudoun County (or anywhere else for that matter), you've probably heard the phrase,
"Our incentives are tied to the use of (fill in the blank) mortgage company and (fill in the blank) title company. You don't have to use our lender or title company, but you'll forfeit the incentives being offered if you don't."
Builders have long been able to get away with this practice. They operated within current RESPA regulations which state that home buyers have the right to choose whichever lender and title company they wish. Since the builder is not forcing you to use their lender or title company, they weren't in violation of those regulations. And their tying the incentives to doing so didn't violate them either.
But that may be changing. The practice of tying incentives to lenders has come under fire and there are reports that there is serious talk of new RESPA regulations that will ban builders from tying incentives to the use of lenders which they have a financial stake in. (This may also spill over to the use of title companies which builders have financial stakes in)
I'm all for this. As it stands now, builder's lenders and title companies generally have higher fees and closing costs than "retail" lenders and many other title companies. But the incentives tied to use of the builder's lender and title company outweighs the higher costs associated with using them so it's still better for buyers to go with the builder's lender and title company.
If the change happens, buyers will be able to take advantage of the incentives as well as get a better deal on closing costs and fees. And it will promote more competition, which is better for consumers.
But then again…if the changes to RESPA do happen, the builders may all scale back their incentives to make up for the lost revenue from their mortgage and title companies.
There's more to come on this in the near future…I'll keep you posted.