A Double Bottom in the Loudoun County Housing Market

There is going to be a double bottom in the Loudoun County housing market. No…not could. It is going to happen.

And it’s happening already.

The first bottom in the Loudoun County housing market came in the summer of 2009. The peak of the boom market was the summer of 2005. Prices went into a free fall from the summer of 2005 through the summer of 2009. (Sorry to bring up such a sore subject)

From the summer of 2009 to the end of April 2010, prices rose anywhere from 10 to 20 percent (some pockets of Loudoun County and Northern VA went up even more). Some of the reasons include extremely low housing inventory, record low mortgage rates, the federal home buyer tax credit and a renewed sense of confidence in the housing market and general economy.

But…between May 1, 2010 and today, market values have plateaued and even declined in many areas. Prices have gone down as much as 5 percent in many areas of Loudoun County since May 1 (some areas have seen 10 percent drops).

Values going down since May 1 means that there is going to be a double bottom in the Loudoun County housing market.

What happened?

Inventory increased and demand decreased. Banks started releasing more foreclosure/bank-owned properties on the market and sellers who saw prices increasing and had a renewed sense of (some) confidence decided to finally put their property on the market and make that move they’ve been putting off due to the crappy market.

Buyers who were going to wait until later this year or even the beginning of next year to buy bought earlier partially due to the federal tax credit. You had 12 to 18 months worth of buyer demand all crammed in to a few months while the tax credit was available. Now that all those people have bought, we have less buyer demand.

Also…with prices 10 to 20 percent higher earlier this year than in the summer of 2009, some buyers were priced out of what they originally wanted and could afford to buy.

When is the second bottom in the Loudoun County housing market going to be here and how much will values go down again?

If I knew the answer to this question, I’d be a billionaire. Thus, I still work. But I can make an educated guess…

The first rise in prices took almost 4 years (the boom market of the early 2000′s). The first bottom took 4 years exactly to get here (summer 2005 – summer 2009). The most recent rise in values took about 9 months (summer 2009 – April 30, 2010). I’d say the next bottom will be here 9 to 12 months from May 1 (end of 2010/spring 2011).

Values went up 50+ percent in the boom market and then came down about the same amount. The recent rise in prices was 10 to 20 percent so I’d say a 10+ percent downward correction in the second bottom is very possible.

But that’s just an educated guess. If rates continue to stay low, that may help soften the blow of the second bottom. But rates are artificially depressed thanks to government intervention and Europe’s general economy not doing too well. Should rates go up (which they most likely will) and investors who took money out of Europe and put it into the US stop doing so, all bets are off.

In addition, the cost of financing has risen 33 percent over the past few years. And beginning September 1, the cost of FHA financing (which is very common in this area) will go up substantially, further raising the cost of buying a home. A rising cost in financing and monthly payments is not a good thing for market values.

Yes folks. There is going to be a double bottom in the Loudoun County housing market and we’re already in the midst of the second bottom.

What does this mean to you?

It’s different for everyone and depends on your specific situation. If you would like to chat more about it, email or call me anytime.

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