From today's Wash Post...
As Usual, It All Comes Down to Where
By Elizabeth Razzi
Sunday, August 26, 2007; F01
You've got to admire their guts, at least. And in the end, you might marvel at their timing.
On Aug. 16, the same day financial markets across much of the world were coming unglued, Erin Fuller and her husband, Michael Leurdijk, listed for sale their three-bedroom bungalow on N. Edgewood Street in Arlington.
This little house rivals Tai Shan for cuteness, and it's in a popular neighborhood, Lyon Park, near Metro. But with an asking price of $899,000, a buyer would probably need a loan well above the jumbo threshold of $417,000. And jumbos are among the loans being shunned by mortgage-bond investors, who lately have been too frightened to invest in anything unless Uncle Sam agrees to read them a bedtime story and place their cash under his mattress. Have these homeowners lost their senses?
Wall Street's spasms did give Fuller and Leurdijk pause. Leurdijk works as a financial consultant; it's not as if he wasn't aware of the turmoil. "We did a gut check on it, and we talked to our Realtor," Fuller said. "We stuck with our decision." They had already purchased a larger home in Arlington, and they figured there is not a lot available for sale in North Arlington at a price similar to the one they are asking.
Evidently they weren't the only ones not scared away from the market that week. Just three days after their house hit the multiple listing service, about 45 people dropped by for a Sunday open house, according to their agent, Lisa Joy, who works in the McLean office of the McEnearney Associates real estate brokerage.
Fuller and Leurdijk probably are not alone in that little gut-check business right now. Normally, late summer is a good time to jump in to the housing market. It usually springs back to life in September and October, following a slowdown in activity during July and August. But this year is different.
It has been a buyer's market for a year or more, depending on location. Companies that lend mortgage money are shutting down, closing offices or laying off employees. Companies that build houses are struggling as buyers back out of contracts. And a higher-than-usual number of homeowners find themselves stuck with a mortgage they can't pay or are even facing the loss of their homes to foreclosure.
Should a rational person sit out the market? If you're trying to buy, will you be able to get a mortgage? If you're trying to sell, will your buyer be able to get a mortgage? Should you wait until spring, when more of this financial mess might be fixed -- or at least better understood? They're all fair questions, given the reports from Wall Street.
Locally, the answers to those questions vary tremendously according to geography. There are two housing markets in the Washington area, divided roughly by the Beltway. The recovery has arrived for the District and close-in suburbs. It hasn't for communities farther outside Interstate 495. And in a few spots, most notably Manassas and Manassas Park, recovery is hard even to imagine.
In Arlington, Fuller and Leurdijk may have happened to hit the market's turn dead-on. In July, the median price for a single-family resale home in the county increased nearly 11 percent compared with a year earlier, according to Metropolitan Regional Information Systems, the local multiple listing service. That was the first significant increase since prices headed south in July 2006. (Technically, there was a price increase of 0.2 percent in December, but that's barely enough to register.) Sales volume went up during July in Arlington as well. The number of sales was 7 percent higher than one year earlier.
Other close-in communities saw positive numbers in July as well:
In the District, the median price was 3.9 percent higher than a year ago, and the number of sales rose nearly 11 percent.
In Montgomery County, prices rose 7.7 percent, though the number of sales fell nearly 16 percent.
In Alexandria, prices rose 4.4 percent, and sales rose 9.8 percent.
In Falls Church, prices rose 13.6 percent, and sales shot up 38.5 percent.
Elsewhere, however, the picture becomes less clear.
In Prince George's County, prices fell 1.5 percent, and sales fell a whopping 42 percent compared with last year.
In Frederick County, prices rose 0.4 percent, but sales fell by more than 20 percent.
Where overstocked new-home builders are hurting, namely Loudoun and Prince William counties, so too is the resale market. In Loudoun County, prices fell 6.4 percent, though sales rose 12.5 percent. In Prince William County, both prices and the number of sales declined. Prices fell 6.4 percent, and sales dropped by more than 26 percent.
True suffering is ongoing in the Manassas area. In Manassas, prices fell 15.5 percent compared with last year, and sales fell 10 percent. In Manassas Park, prices fell 14 percent, and sales plunged 50 percent.
Sellers only put a house on the market in a climate like that because they have no other choice. And buyers only buy because they have plenty of cash, plenty of time and a hearty stomach for risk. If they can afford to ride out the market until it somehow rights itself, they can profit. But they could be in for a very long run.
If you do dip back into the Washington area housing market this fall, you should be able to find a mortgage. But you'll have to prove to a loan officer that you're worth the risk. We're returning to the lending style of the olden days -- before the late '90s at least -- when borrowers had to actually convince a lender that they were able and willing to pay back a couple of hundred thousand dollars, profitably, over two or three decades.
Be prepared to make at least a 5 percent down payment and to pay private mortgage insurance unless your down payment is a hefty 20 percent of the sales price, said Kevin Connelly, branch manager of Pinnacle Financial in Vienna and chairman of the finance committee for the Northern Virginia Association of Realtors. "One hundred percent financing is gone," he said.
You'll need a FICO credit score of 680 now, vs. the 620 minimum of not long ago. (You can buy a copy of your credit score report for $15.95 at myfico.com. Click on the "shop" button and search for the "standard" score to avoid FICO's higher-priced packages.)
One quick way to shore up your score is to rein in credit card balances -- even if you've been managing high balances faithfully for years. Connelly recommends keeping the outstanding balance on each credit card account to less than half of the credit line available to you. "That is key," said Connelly. "That would drive a credit score up or down by 40 to 80 points."
This is not the time to close out credit card accounts. That lowers the amount of credit available to you and can actually drive down your FICO score. You can't afford that in this fall's mortgage market.
Have recent pay stubs and income tax returns for the past two years available for the loan officer to review. And have bank records to prove that you'll have cash available to cover several months of mortgage payments after you close on the loan.
If you got a lender's commitment letter for a mortgage sometime over the summer, pick up the phone now. That commitment may not still be good. Talk with the lender and make sure you still qualify. You can be sure that's the first thing a real estate agent will do when you present an offer to buy a house.
A mortgage is not something to take for granted anymore. But if you have your finances together, you ought to be able to find one -- even a jumbo -- for a purchase this fall.
E-mail Elizabeth Razzi atrazzie@washpost.com
© 2007 The Washington Post Company |
