Thankfully, the Harrisonburg and Rockingham County real estate market is not greatly affected by foreclosures and short sales.  Many people ask why we haven't seen an overwhelming number of foreclosures in this area -- to which I offer:

• We did not see as many hopeful homeowners pursuing the wild and crazy loan programs (interest only, reverse mortgages, etc) that some borrowers utilized in larger metropolitan areas.
• We did not have a great deal of overbuilding as was seen in many other metropolitan areas, leading to even higher levels of surplus inventory than we experienced in our market.
• We did not have investors contracting to buy multiple new construction properties with the sole intent of flipping them once construction was complete.
• We did not see as huge of an increase in values as was seen in many larger metropolitan areas.

All of these factors contributed to a relatively low foreclosure rate in the Harrisonburg and Rockingham County.  But indeed, some houses are foreclosed upon, and this often causes neighbors to wonder what will happen to the value of their property because of this foreclosure sale.  But before we get to the potential impact, let's examine how such a property might be sold:

• The homeowner might seek their lender's approval for a short sale -- a sale in which the proceeds from the settlement do not allow the homeowner to repay their lender in full, and where the homeowner does not have sufficient personal funds to cover the difference.  For example, if a homeowner borrowed $400k for their purchase, and a year later could only sell the house for $350k (and didn't have $50k to cover the gap), they might seek lender approval for selling the house at $350k and short-changing the lender by $50k. 
  
• The property might be sold at a Trustee Sale, which is an auction on the courthouse steps. 
  
• If the property is not purchased at the Trustee Sale, it becomes a bank owned property (REO) and is then put back on the market, sometimes at a below market value.

In any of the scenarios above, the property is likely to sell at a "below market" price.  Consider for a moment that homes in a particular neighborhood generally sell for between $250k and $300k.  We'll assume that the property in question (either a short sale, trustee sale, or REO sale) sells for $200k instead --- a big gap below market value.  Again, neighbors would understandably wonder whether that now means that their house is only worth $200k. 

So, what is the impact?  In our market, with a very low number of foreclosures, this sale will not have a tremendous impact, unless the particular neighborhood where it is situated happens to have an above average number of foreclosures.  Let's see why . . . .



The table above demonstrates the impact of foreclosures on a given market when 8% of the sales are foreclosures, 50% and 75%.  Of note, I have informally heard from several colleagues in Winchester that earlier this year 75% of active listings in their market were foreclosures, short sales or bank owned properties.  The analysis above assumes that "normal sales" range from $250k to $300k, and that the foreclosure sales are all at $200k.

As you can see, with a foreclosure rate of less than 10%, the impact on median sales price is marginal.  However, the market value of homes really starts to shift as there are more and more foreclosures in a market.

Interestingly, this is a bit of a snowball effect.  More foreclosure sales bring home values down, which puts more homeowners under water, which causes more foreclosures, which brings home values down further, etc., etc., etc.  Thankfully our local market has escaped this downward cycle to date!

This is a broad topic, so feel free to ask some clarifying questions or raise other thoughts or perspectives, in the comments below, by e-mail (scott@cbfunkhouser.com) or by calling me at 540-578-0102.

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Have you heard of American Builders Quarterly?  The publication provides a comprehensive look at the nation's entire construction industry by profiling leading companies that consistently perform in all aspects of the building trade.  Take a look at the covers of the last 15 issues (below) and you'll notice one company right here in Harrisonburg, Virginia that was recently highlighted by American Builders Quarterly: Scripture Communities.



This is rather big news, as this publication covers huge developments and developers all over the country --- but they took note (on the cover of the magazine, no less) of this local company that has been building communities in Harrisonburg and Rockingham County for several decades.



The article focused on Scripture Communities' emphasis on building lasting communities focused on market demands.  For years now, Jerry Scripture has been building unique, innovative communities to meet the specific needs and desires of home buyers in many different demographics. 

Communities currently being developed by Scripture Communities include:

• Heritage Estates: 55+ community with stunning French Country architecture, mountain and golf course views, and a community swimming pool.  Single family and paired homes, starting at $339k. www.HeritageEstates.us.
   
  
• The Cottages at Stone Spring:Energy-efficient "green homes" meticulously built to EarthCraft and/orEnergyStar standards.  Single family homes starting at $247k. www.TheCottagesAtStoneSpring.com.
   
  
• The Glen at Cross Keys: Spacious paired homes with high quality interior and exterior features and finishes, with a just released one-level floor plan.  Paired homes starting at $239k.  www.TheGlenAtCrossKeys.com. 
   
  
• Liberty Square: Two and three bedroom townhomes with City convenience, quality interior features many construction options, and several neighborhood amenities.  Townhomes starting at $149k.  www.LibertySquare.biz.
   
  
• Founders Way: One-level upscale condominiums with amenities such as a swimming pool, fitness center and jogging trail.  Construction has begun!  Condos starting at $149k.  www.FoundersWay.com.
  

If you have questions about any of these communities, please let me know (540-578-0102, scott@HarrisonburgHousingToday.com), as I represent Scripture Communities and can either answer your question, or identify someone who can.

ALSO --- STOP THE PRESS!
Don't forget about the Scripture Community Move Up Program, where Scripture Communities will potentially buy your house if you love one of their new communities and want to move up into a new home. 

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Somehow, the $8,000 tax credit for first-time buyers is getting all of the attention, meaning that most people don't even know about the $6,500 tax credit available to you if you've lived in your home for five years.

If you have owned your home for five or more years, you will (almost certainly) receive a $6,500 tax credit if you buy your next home by April 30th, 2010.  To clarify -- you must have a contract on the house by April 30th and close by June 30th.

Many people that I talk to who would be eligible for this $6,500 tax credit don't even know that it exists.  If you're in this situation and planning to buy a new house in 2010, you really ought to consider making a move in the first four to six months of the year. 

Click here for more information (from the IRS) about both tax credits.

Again, to try to really drive this point home:  If you've owned your house (and lived in it) for more than five years, you are very likely eligible for a $6,500 tax credit if you buy a new home by the spring/summer.

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The U.S. Department of Housing & Urban Development approved  (some time ago) two updated forms that are CENTRAL to the real estate transaction.  These two new forms will go into effect on January 1, 2010:

• Good Faith Estimate (pdf)
• HUD-1 Settlement Statement (pdf)

The new forms (and accompanying rules) are intended to help home buyers (who are obtaining mortgages) to better understand and compare their mortgage options.  In theory, this will allow them to obtain better loan terms, lower interest rates, and lower settlement charges (closing costs).

The new Good Faith Estimate (GFE) is now a standard form across all lenders.  In the past a borrower would receive a GFE with a different format from each lender that they visited --- each having a slightly different set of disclosed loan terms, or vocabulary for referencing such terms.  Now, a buyer can compare two proposed mortgage scenarios from two different lenders and be able to quickly and easily compare the exact same terms from each.  I see this as a huge improvement for the financing process (for buyers), as in the past there has often been much confusion about how to determine which proposed loan program is better than the other.

Here is an excerpt from Page 1 of the new Good Faith Estimate, which (surprisingly?) is quite intelligible!



But there's more!  Beyond a buyer's (borrower's) loan terms and closing costs being easier to comparison shop, and easier to understand . . . there is also more accountability on the lender to make sure that those terms and costs stay intact through to closing.

Some of the costs CANNOT change from the Good Faith Estimate, others can only change by a certain percentage, and others that can change without limit.  This is a big improvement from current HUD guidelines whereby there was no guarantee that any of the closing costs or loan terms from a Good Faith Estimate would be carried through to closing.

If you're buying in 2010, or beyond, you'll have the benefit of these new lending guidelines.  Feel free to ask questions as you go through the process (of me, or of your lender) -- but hopefully the process will be much clearer and easy for you to navigate!

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Thankfully, the value of homes in Harrisonburg and Rockingham County hasn't taken a nose dive like has happened in many other markets.  As you can see below, modest (normal?) growth in values occurred between 2000 and 2003, unbelievable (and unsustainable) growth in values occurred between 2003 and 2006, and prices became stagnant between 2006 and 2009.



That being said, since we haven't seen consistent growth in home values since 2006, there are some homeowners who are unable to sell their house (after costs) for as much as they bought it. 

Conventional wisdom pre-2003 said that you should only buy a house if you knew you'd be living in it for 5 or more years.  You see, with the principal balance of the mortgage declining SO SLOWLY at the start of a 30-year mortgage, it would take a full five years to have paid down the mortgage enough to cover the costs of selling.

As you might imagine from the graph above (or from talking to your friends), some people bought in 2003, 2004 or 2005, and then sold a year later at a tidy profit.  The market was going up so quickly that they could sell one year later with no financial detriment because of the high rate of appreciation.

Let's take a look at how our market has performed over the past decade by imagining that someone has to sell three years after they buy.



As per the chart above, a homeowner buying 2000 or 2001 would have been experienced a good sized gain.



The gain is starting to be more and more unbelievable at this point.  Buying in 2003 and selling in 2006 would have resulted in a whopping $53,000 gain, or roughly $18,000 per year.



While things are starting to slow down, we see here that someone could have bought as late as 2005 and been just fine, given that there was such a big jump in median home values between 2005 and 2006.



OOPS!  Wait a minute!  A $16,000 loss??  It's true --- if you bought in 2006 or anytime thereafter, and you want to sell your house, you'll need to prepare to do so at a loss, given the costs of selling.

The big question:  When will the median sales price start to stabilize?  When the supply of homes for sale starts decreasing more rapidly than it has, I believe we'll start to see the median price inch upwards again --- though not at the pace it did between 2003 and 2006!

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While every home is unique, there are some properties that have peculiarities that can detract from their value.  Some of these oddities include:

• steep driveway
• hilly building lot
  
• power lines across or near the lot
• on a busy road
• awkward floor plan
• non-residential-use neighboring properties

There are probably other general oddities like these that may (to some extent) detract from the value of a home (add them in the comment section if you can think of any) --- but these are some that are widely viewed as being value detractors.

A few years ago, when the market was hot, hot, hot (2000-2005, we'll say) these detractors didn't seem to matter too much to a buyer.  Buyers often had only a few houses to choose from that would work for them, and some of those would go under contract the following day, so buyers committed to buying houses that had some peculiarities just to get a house.

Now, buyers have lots and lots of houses to choose from, and thus if there are 10 houses that could work for them, and three have some of the oddities listed above, they will almost certainly only be considering the seven remaining properties.  Thus, these property oddities have MUCH more impact on value now than they did just a few years ago.

Put another way, a few years ago a 2400 SF home with 4 BR, 2.5 BA and a level lot would have likely sold for only a few thousand dollars more than an identical house down the street that had a very steep lot and driveway.  Now, however, there might be a $10,000 - $20,000 difference in sales prices for these homes.  Or . . . the home with the very steep driveway and lot might just languish on the market rather than selling.

DOES IT MATTER?  I had a very interesting conversation about this with a client a few days ago.  Here is what we concluded:

1. If you buy a property with oddities in a hot market, and you sell it in a slow market, you'll feel the pain. 
   
   
2. If you buy a property with oddities in a slow market, and you sell it in a hot market, you'll do great!
   
   
3. If you buy a property with oddities in a normal market and sell it in a normal market, you'll do quite similarly as compared to if you had bought a home without oddities.

Here is a visual representation of these dynamics:



So . . . . to re-emphasize #2 above: you can likely negotiate significantly on a home with oddities right now (in a slow market).  If you do so, you'll do fine if you sell it in an equally slow market, you'll do better if you sell it in a normal market, and you'll do great if you sell it in a hot market.

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Over the last few days I have had quite a few discussions with developers, builders, buyers, sellers, and other Realtors regarding the exciting change of pace our local real estate market experienced in November 2009.  To remind you of this astonishing news:

• November 2009 sales were 95% higher than November 2008.
  
  
• Home sales increased 30% between October 2009 and November 2009 -- a time period when we typically see a decline.
  
  
• November 2009 outperformed every other month of home sales in 2009 other than June and July.
  
  
• It looks as if 2009-Q4 will be the first quarter in four years with an increase in home sales as compared to the same quarter the prior year.

Read more here and here.

All of these are wonderful indicators, and we find yet another one at the top of this post, showing that while online property views (defined below) have been declining over the past few months, they are much higher than could be expected.  In fact, there were more properties viewed online in November 2009 than in March 2009. 

Wow!  We would typically expect that most buyers would be looking at properties online (and in person) at the start of the spring "buying season" -- but the graph above shows that there are still LOTS of buyers looking (at least online) at properties for sale.

Online property views is the sum of all property views on the Coldwell Banker Funkhouser Realtors network of web sites, including our company web site, and all agent web sites.

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If you're building a home, what should you use as a driveway material?  There are a lot of options!

• Pavers, Brick or Stone
• Concrete, Stamped Concrete, or Exposed Aggregate
  
• Asphalt
• Gravel
• Dirt

Each has their own advantages and disadvantages, related to cost, appearance, durability, etc. 

Let's take a look at the most common types of driveways in Harrisonburg and Rockingham County.  The data source for this analysis is the Harrisonburg/Rockingham Association of Realtors MLS, so it's an inexact analysis, but can still provide some helpful insights. 



The chart above shows that the most common driveway material for single family homes in Harrisonburg and Rockingham County is gravel!  Beyond gravel drives, which are likely found mostly in the County, the most frequently occurring driveway is an asphalt driveway.  Let's take a closer look at driveways of single family homes in the City of Harrisonburg, to exclude the more "rustic" driveways found on homes further out in the County . . .



In the City of Harrisonburg, a full 1 in 5 driveways is still gravel, though asphalt driveways now lead the pack, with a full 10% greater market share than concrete driveways.



The graph above analyzes "expensive" homes --- those sold above $350k in the last year in Harrisonburg and Rockingham County.  Here we find an even more overwhelming share of asphalt driveways, though we also see an increase in the percentage of exposed aggregate driveways.



Perhaps most interesting is that when examining homes sold since Jan 1 2000, we find that most have had concrete driveways.  Is this perhaps the sign of a growing trend in our area, or the nation as a whole?


Notes:  In the last year, 570 single family homes sold in Harrisonburg and Rockingham County (per the HRAR MLS), and the analysis above is based on the 534 sales where driveway data was present and usable.

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Take a look at home sales activity summarized by Quarter . . .



As you may notice, we've seen a steady decline in the number of residential sales in Harrisonburg and Rockingham County since 2005 . . . until the fourth quarter of 2009.  Look again . . .



Please note, first, that the final fourth quarter 2009 sales figure is extrapolated based on data available as of November 30, 2009.  So, my data could be wrong --- but I recently made some wild guesses about November 2009 sales (first I guessed 65, then I guessed 76) and they were both too low (the final figure was 82)!

If we do see an year to year increase when comparing 2008-Q4 versus 2009-Q4, I think we can get excited about 2010 being the year when home sales finally started increasing again in Harrisonburg and Rockingham County.  That being said, I will still allow for skeptics to blame it on the tax credit, or for other factors in the current market.  Any skeptics out there?

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I recently wrote a post entitled "Is it logical for a buyer to want 10% off of a "fair" asking price in today's economy?" where I concluded:


Yet even given that perspective, there are deals to be had in the current real estate market --- and the buyers who are making aggressive offers are usually the ones finding the great opportunities.

Here are the factors at play:

1. Most homes sell very close to their list price, which prompted the original question: Is it logical for a buyer to want 10% off of a "fair" asking price in today's economy?
2. Many buyers are hesitant to make offers too far off the list price, causing me to describe them as bashful, even way back in February 2008.
3. There are plenty of houses where the seller just won't budge much on price, because they have priced it very close to their bottom line to be competitive.  It's difficult, after all, to Price Competitively, But With Room To Negotiate, which causes The Home Pricing Conundrum: Increasing Traffic At The Expense Of Reasonable Offers

So, again -- most homes sell close to their asking price, but even if a list price has flexibility you need a buyer --- and most buyers are hesitant to offer too far below the list price, but even if they did make an aggressive offer --- most sellers won't budge too far beyond their list price. 

Thus, the stars must align --- a buyer must be willing to make an aggressive offer on a house that just so happens to have a seller who is ready to be overly flexible with their price.  The natural question here is whether this actually ever happens.  It does!  But here's how --- these buyers who want to find that "great deal" often have to make offers on multiple houses before they find the one where the seller will be flexible.

My advice to ALL buyers is to go ahead and make the offer that you think is reasonable, even if you are pretty sure the seller won't take it, and even if you aren't going to then skip around to house after house to find someone who will take your aggressive offer.

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Take a look at this graph and see if you notice anything . . .



I notice a few things that are quite exciting:

November 2009 home sales were 95% higher than a year ago (November 2008).  Furthermore, there was a 30% increase between October 2009 and November 2009, when most other years there has been a decrease between October and November.

November 2009 outperformed every other month of 2009 except for June and July.  November is typically a very slow month for home sales, but this year buyers came out in droves!

Read on for more good, bad, and neutral news . . .



Click here to download the PDF.

If you find the information in this report to be helpful....

• Feel free to share it with your friends or colleagues.
• Let me know if you'd like to meet to discuss this report and/or the particulars of your real estate situation.
• Let me know if you would like to schedule a time for me to come speak to your company or an organization in which you are involved.
• If you'd like to re-publish all or part of this information on your web site or in an article, just let me know if you need any additional information or graphics.
• If you'd like to know even more about the housing market in Harrisonburg and Rockingham County, click here to subscribe to HarrisonburgHousingToday by e-mail or by RSS.
• Though I spend a considerable amount of time analyzing our local housing market, the majority of my time is spent helping people like you buy and sell real estate.  If you (or someone you know) will be buying or selling real estate sometime in the near future, I'd be delighted to have the opportunity to be of service.

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If you're buying a fixer upper that you'll live in, you might want to consider the FHA Section 203(k) loan program!

This program allows a buyer to finance their purchase and subsequent repairs into one loan.  The alternative is for a fixer-upper buyer to obtain a secondary or short-term loan to finance the repairs or improvements that they will make after settlement.

You can finance significantly more than the purchase price of the property in order to have cash on hand for repairs.  The funds for improvements are placed into an escrow account, and the buyer (now owner) can draw on them through the rehabilitation process to pay for the repairs and improvements.

There are a few basic guidelines that can quickly tell you whether this might work for your situation:

• This loan program is not for those purchasing investment properties.
• Single family homes, townhomes, all the way up to a fourplex are all acceptable properties.
• The improvements must meet HUD minimum property standards.
• The planned improvements must cost at least $5,000.
• The improvements must start within 30 days of settlement, cannot cease for 30 consecutive days, and must all be complete within six months of settlement.
• You, the buyer/borrower, can do the work yourself, though you can only be paid for the cost of materials.

Of note, the Streamline 203(k) might also be of interest -- it allows for up to an additional $35,000 to be financed for improvements prior to move-in.

I have had clients consider this program, who didn't end up buying a fixer upper.  Have you purchased a house in Harrisonburg (and surrounding) using this loan program?  Or do you know someone who has?  Please share!

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It seems that there are quite a few people in our current market who want to buy a house --- but they're at a standstill, because they have to sell their current home before they can buy.  It can be a challenge to buy and sell simultaneously, as I pointed out this past September.

But maybe there's another way . . .

I market several neighborhoods of new homes for Scripture Communities, and just recently the builder (Jerry Scripture) has devised a move up program that has worked for him in the past, and is working again now in our current market.

The concept is this: In certain circumstances, Scripture Communities will help you sell your current home, or will even commit to buying your home, if you are buying a new home in a Scripture Community.  Does it sound to good to be true?  It can be of tremendous help to someone who wants to buy, but most sell in order to do so. 

As a real, live, example --- we're in the process of building a home now (at Heritage Estates) for someone who is using the Scripture Community Move Up program.  If they can't sell their current home themselves by the time their new home is complete, Scripture Communities will buy it from them at an already agreed upon price so that they can close on their new home.

There are a few common sense guidelines that we're using when considering these move up scenarios:

• The buyer must be moving up, with a decent margin between the house prices.  It can make sense for Scripture Communities to buy a $200k house to allow someone to close on their purchase of a Scripture Communities $300k house.  Likewise, it can make sense for Scripture Communities to buy a $275k house to allow someone to close on their purchase of a Scripture Communities $400k house.
• The buyer (and builder) must be reasonable in deciding on a purchase price for the buyer's current home.  Scripture Communities will buy (or consider buying) a house a price that is agreeable to all parties --- but sometimes an agreement can't be reached.  
• This won't work for every situation, but it can work for many seller-buyers.  Scripture Communities can't buy every or any home for someone who hopes to buy at one of these new communities, but we'll certainly try to make it work for you to help with your housing transition.

As a reminder, here are the new communities where a move up scenario might work:

• Heritage Estates (55+ community with pool, French Country architecture)
• The Glen at Cross Keys (paired homes from the mid $200k's)
• The Cottages at Stone Spring (energy efficient homes in the $200k's)

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Much has changed in our local real estate market over the past threeyears, and yet, much has not changed at all.  Let's examine today'smarket from the context of just three years ago.  Back in November2006, my column in the Shenandoah Valley Business Journal includedthese excerpts:


In today's market we find that nearly everyarea of the Shenandoah Valley, in every price range, is experiencing abuyer's market.  The supply of homes far exceeds the demand, providingbuyers with plenty of choices and negotiating ability when purchasing ahome.


Today'srates are as low as 4.75%, with most buyer's rates hovering around 5%depending on their loan program and credit scores.  It is indeedremarkable that the low interest rates from just three years ago arenow more than 1.5% lower today.


Inmost cases, houses are now staying on the market even longer than theywere three years ago, providing even more choices for buyers.  Thissupply has not yet shown signs of declining, though the sales pace maybe solidifying after several years of declining numbers of home sales.


Thisstatement was in the context of sellers being willing to pay closingcosts, or to offer other incentives.  There certainly wouldn't havebeen too many people, three years ago, who would have imagined that thefederal government would be offering an $8,000 tax credit to first timebuyers, and a $6,500 tax credit to long term owners of principalresidences.  This statement from the past is true yet again, but in anew context – buyers have yet more unprecedented assistance in today'smarket!


Three years later, we aren't yetseeing higher prices, or higher interest rates, or fewer choices, orfewer buyer incentives.  Thus, there are still great opportunities forbuyers in today's local real estate market --- but with one significantcaveat.  Over the past three years, prices haven't fallen, which iswonderful, but they also haven't increased.  Today's buyers, therefore,should only consider a purchase if they will stay in their home forthree or more (or five or more) years.  The days of recent past when abuyer could sell a year later for a profit are certainly no longer areality.

As always, in real estate, context is of utmost importance. Over the past three years, median home prices in Harrisonburg andRockingham have fallen by 1.5%.  In a vacuum, this isn't overlyexciting or depressing.  Consider that most other areas in the countryhave seen value declines of 20% in the same time period, and it's a bitmore exciting.  Consider that our local home values increased by 51% inthe preceding three years (2003-2006), and it's even more exciting!

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