As we've said before, we're pro-homeownership. But not ownership at the expense of the entire US economy and a global credit crisis. Houses--homes--are about security and comfort, and should reflect the habits, tastes, and predilections of their owners. Houses are not meant to be cash cows.
And btw? We're anti-spin, not anti-Realtor. Realtors who survive this downturn are the ones who don't lie to the American public.
We have a couple of "predictions" for 2009. But first, a look back at 2008.
1. INVENTORY - There's a lot to choose from.
By the end of December 2008, the Charlottesville / Albemarle area alone had 26 months of inventory, which translated to sales significantly down from 2006 and 2007.
2008 down from 2007: 10% City, 33% County, 25% Region.
2007 down from 2006: 17% City; 20% County; 19% Region.
More comes on the market nearly every day. 26 months was December's figure. By the beginning of January, the figure is down to 18 months for the region.
But the available numbers don't tell the whole story.
CAAR's 'number of homes on market' fell by 181 properties between Dec. 31, 08 and Jan. 1, 09. Expired listings? Withdrawn listings? This number is not reflective of sales. (Please feel free to correct this in comments.)
And not everything "for sale" appears in the MLS. We've discussed "shadow inventory": homes pulled from market because they'd been on too long; or were rented; or homes that are in the foreclosure process or REO. Today, Jan. 7, there's a post on local shadow inventory over at RealCentralVA.
Nationwide, the number of pending home sales in December dropped. (Thanks, JH). January typically has fewer sales than December. Combined with the expected dismal retail sales reports on 1/8, and the shocking unemployment rate on 1/9...January's not looking good.
2. BUYER'S MARKET - Last June, on the front page of the Sunday Daily Progress, an industry professional stated homebuyers should not be greedy. We're not likely to see an article like this in 2009.
The bubble's burst, the US economy is in recession, State, County, and City govs are having budget issues.
But Asking Prices often remain high. This is because many Sellers have to make a certain amount due to having paid a bubble price or having a HELOC...though their homes are no longer worth what they paid.
What Sellers call "a protected market," buyers call a "bubble." Nationally, prices are down to 2004 levels. Sure, we're not a major metropolitan area; we just have the prices of a major metropolitan area.
Here are just a few examples of "bubble" asking prices, ioho. The impetus behind each price of course varies with each seller, but some reasons include a "need to make" a certain amount, knowledge that a neighbor's property fetched a certain amount, love of/sentimental attachment to the home, poor advice from a professional, a belief that it's still 2005, a belief that Charlottesville is a protected market, or a disconnect from the wider world:
- 708 Park Street originally had an Asking Price of $850K. The place went through significant renovations, but still couldn't find a buyer at the upper price point. After almost a year on the market, $470K = sold price.
- In the Belmont Bubble eight cottages have been available since July. These properties haven't changed hands for decades; no individual or investor is biting at the +/-$200K prices. Unsold.
- In the middle price range of City housing, this collection of properties, offered by one seller, have "appreciated" by 100%-237% over time spans of 3-8 years. All unsold.
- At the higher end are these "$1M" Asking Prices: 615 Kelly Avenue, assessed at $245.5K - Unsold. 517 2nd St NE, assessed at $664.8K - Unsold.
- At the top end: Coran Capshaw's Seven Oaks. Asking: $12.5M; dropped to $10.5M in October. Purchased in 2000 for $2.5M; assessed: $4.4M. Unsold.
Most buyers no longer believe homes will appreciate, that in this area they're more likely to depreciate, since the correction has been much slower.
Those buying right now seem to be doing it for the "right" reason: because they need a "home."
Lowball offers will prevail. We wrote about lowball offers last Spring here and here. You may also find information from a professional point of view here.
3. THE FUNDAMENTALS REMAIN WEAK - In late September, Charlottesville Area Association of Realtors CEO Dave Phillips, not himself a REALTOR, stated in the Daily Progress:
"The turmoil on Wall Street will not affect Charlottesville’s housing market. Unless you’re in the financial business, it’s not going to affect you."
Phillips also suggested that the troubled economy was the result of media spin. This caused shock and disbelief on this blog, at the DP, and on RealCentralVA. We're not likely to see a real estate professional make such a pronouncement--ever again.
We invited Phillips to clarify this statement, and he obliged.
4. BUILDERS GO BELLY UP - Contrary to "the fundamentals remain strong" idea, Church Hill Homes principals Jamie Spence and Josh Goldschmidt knew they were in trouble: they unloaded 11 properties at "green community" Belvedere to Eagle Construction of Richmond and took jobs with the company. In October, Church Hill Homes faced mass foreclosures. And at the end of the month, The Hook's cover story detailed hundreds of thousands of dollars of liens owed subcontractors.
On December 31 the DP reported Weather Hill Development also faced mass foreclosure; the developer says Hauser Homes is to blame.
5. REAL ESTATE OFFICES CLOSING - Real Estate III is closing a couple of offices. Call it "merging," call it" streamlining," call it going green: the fact remains that the bubble is over and downsizing is key.
6. COMMERCIAL REAL ESTATE FALTERS - Landmark Hotel construction paused--or did it? Silverton Bank of Georgia defaulted on payments--or did it? In any event, Developer Lee Danielson is off the project. The money man, Halsey Minor, hired a new developer for the $31M luxury hotel on the Downtown Mall. But much on the Downtown Mall is empty. Some storefronts apparently have future tenants lined up; but other businesses are closing, due to the economic downturn.
7. FORECLOSURES ARE ON THE RISE - C'ville Weekly ran A Tale of Two Foreclosures in mid-December about the travails faced by RE/MAX Realtor Doug McGowan, who used "Option ARM" loans to pay for three properties "bought" during 2005-2006, totaling more than $1.3M, with usurious interest rates of 7%-13%. He then re-fi'd--and fell behind on payments. His properties were scheduled for auction, and he failed to notify his tenants. The article elicited a veritable firestorm of commentary at C'ville and on this blog.
McGowan's not alone, however. The Daily Progress in December ran an article on the rise of foreclosures in this area.
Additionally, local bankruptcies are "skyrocketing", in part due to Option ARMs, falling home values which prevent refinancing, and rising unemployment.
8. REALTOR, VICTIM - Judy Savage, the Broker at RE/MAX and current President of CAAR, logged on to the comments at C'ville to defend Realtor Doug McGowan as a "victim." She was, she said, speaking as a "friend."
In defending him, she put him in a larger group of professionals who apparently made similarly infelicitous business decisions:
- "Many of us have seen our incomes fall 75% from just a few years ago."
- "The Realtor in question is only one of many facing foreclosure and bankruptcy..."
- "I know of several Realtors and Lenders who have now been foreclosed on because they relied on this bad loan product."
- "Just about every restaurant and big box store in town has a Realtor working there part time just to keep their head above water."
9. IT'S A GREAT TIME TO SELL? - Whether it's 26 months or 18 months of inventory, it's a lot. Ray Caddell, Broker at Century 21 on Rio Road put 15 properties up for sale the weekend before Christmas. From the buyer's perspective, this seems mystifying. But we're 100% sure Caddell knows many things we do not.
10. SALES PITCH: DON'T AREA REALTORS NEED SOME NEW MATERIAL? - We suggest that the phrase "Charlottesville is a protected market" be stricken from everybody's sales pitches until 2010 or later--whenever this area hits bottom.
"Protected" or "Insulated" is supposed to mean that the market is buffered by the presence of its largest employer, UVa, a regular fount of buyers and sellers--and thereby protected from the wider world.
But UVa faces budget cuts and more endowment losses. Some recent Endowment loss info is here and here. The Endowment is currently worth $3.9B...but $1.6B is in uncalled commitments to private investors, due over the next five years. UVIMCO CEO Chris Brightman still believes there's such a thing as long-term investing.
We suggest "protected market" be dropped until the "fundamentals" around here really are strong again. Or until UVa gets that Federal bailout and doesn't have the feared wage freezes and layoffs this Spring due to state budget cuts.
"PREDICTIONS" for 2009
We looked into our crystal ball. FWIW, we hope most of these do not come true.
1. Mortgage rates are currently at 37 year lows. Lately, much of the mortgage activity has been confined to re-fi's, even in our area. Still, many sellers may use this as an excuse to keep their Asking Prices at 2008 levels.
2. "Lowball offers" will become the "norm." Buyers tend to be realistic when Sellers can't or won't. (See #2, above.)
3. More builders will face mass foreclosures.
4. There will be civil suits filed against local builders for fraud.
5. Retail closings: couple big boxes, some smaller mall chains, a number of privately owned stores/galleries/services, and a couple of car dealerships.
6. Local unemployment will rise due to #5 and the contracting national economy. The pool of Realtors will contract.
7. Foreclosures will rise. They're already on the way up... this recent study occurred before the Stock market crashed in October.
8. A major regional media outlet will do a story about the local Real Estate market and won't rely on spin from NAR, VAR, or CAAR.
9. The Obama Administration will take swift and decisive action--specifically for the housing crisis. Deficit, shmecifit. A high deficit is better than a Depression. And action could help ameliorate "predictions" 5, 6, 7.
10. There will then be some progress made toward returning this area to "realistic" housing values and the historic paradigms of 1:4 income to price ratio and the price to rent ratio.