It's December 30th, which means that we're less than 48 hours away from the largest inventory reduction that we've seen all year! 

OK --- perhaps I'm being a bit over-dramatic, but I predict that we will see a significant inventory drop as the calendar flips over from 2008 to 2009.  Many listing agreements with hopeful home sellers were likely written with a December 31, 2008 expiration date, with a seller intending to try to sell until then end of the year and then re-evaluate. 

So...today, there are 778 residential properties for sale in Harrisonburg and Rockingham County.  This includes single family homes, townhomes and condos.  How many will still be on the market on January 1, 2009?

Double check those available homes before the New Year rolls around before it's too late!  :)

As featured in the December Shenandoah Valley Business Journal...

Absent hard data on the local real estate market, we could make erroneous assumptions by listening to national news stories.  Here is a quick overview of how things stand in the Harrisonburg and Rockingham County real estate market:

Are property values falling?  No. The median sales price of all residential properties shows a 1% increase when comparing 2008 (Jan-Nov) to 2007 (Jan-Nov).

Are buyers buying?  Yes.  However, it is at a significantly slower pace than last year.  In 2007 we saw 1,182 residential sales (Jan-Nov) and this year we have only seen 861 sales (Jan-Nov).  This indicates a 27% decline in market activity.

Are sellers selling?  Yes.  Homes are selling at approximately the same pace as last year with an average "Days on Market" of 166 this year (Jan-Nov 2008) as compared to 171 last year (Jan-Nov 2008).

Hopefully this draws out the realization that while the national housing market is not doing so well, our local housing market is a different story entirely.  But yet, the state of our housing market isn't good news for everyone:

A Buyer's Delight

Buyers currently enjoy many housing choices, as the slow pace of sales provides for high inventory levels.  Inventory levels have declined since September, and will likely continue to do so through the winter, yet current levels still provide buyers with many options for their next home purchase.

The current slow rate of sales can allow for significant price negotiations in some instances.  Even as median home sales prices stay steady, some sellers are ready to negotiate to provide for a faster sale instead of waiting for months amidst the masses of homes for sale.

Buyers are also enjoying tremendously low interest rates, now below 5% again with many lenders for a 30-year fixed rate mortgage.  The most recent time we have seen interest rates this low was in 2003.

A Seller's Despair

Despite no significant change in the time it has taken for homes to sell, high inventory levels equates to a long wait for many sellers.  This can mean month after month of keeping a home ready to be shown, or it can equate to weeks or months of discouragement from a lack of showing activity.

Buyers want to negotiate on price like never before, which means that not only do sellers need to price their homes competitively to attract market attention, they also need to still have room to adjust once negotiations begin.  Many sellers of late find themselves balancing money and time as they consider a buyer's offer.

Where We Go Next?

As 2008 comes to a close, we still find ourselves in a buyers market, and we will likely see a similar market into the first and second quarter of 2009.  We could start to see an across-the-board downward shift in home values, but if we were going to see a tremendous shift, I believe we already would have seen the start of it.

One of my colleagues in the financial sector recently shared a great cliche about the housing market: "Most people get in too late, and they get out too late."  As he pointed out, the second mistake has already been made by most.  Don't let the first happen, too.

Despite some rainy days in December (see above), construction is flying along at Urban Exchange --- framing for the fourth floor is being finished on the East Tower (apartments for rent), and the first floor is being framed on the West Tower (condos for sale).

Click here to see the latest construction photos of this exciting project in Downtown Harrisonburg, the future home of 196 condos, and 12,000 s.f. of retail space.

I use FeedBurner for my RSS feed, and every few months the FeedBurner service will hiccup, causing my RSS feed to reset.  Thus, anyone reading my blog via Google Reader, or any other rss feed aggregator would have seen 20 (or more) blog posts this morning --- they weren't all written this morning, they are from the last few weeks.  I suspect that those of you who subscribe by e-mail will also receive a very lengthy e-mail with 20 blog posts today. 

My apologies that this FeedBurner error sent WAY to much information at you, most of it for a second time!

Remodeling Magazine has released their 2008-2009 report comparing the cost of a variety of home improvement projects as compared to the added value of each renovation.  The projects that they analyze include: basement remodel, bathroom addition, deck addition, master suite addition, window replacement, and many more.

Drum roll please...

The highest return on investment (as a national average) is a deck addition (80% return on investment), and the lowest return is on a home office remodel.

Learn more...

You can download a full report of the data on a city-level (the closest city to us is Richmond, VA) here. 


© 2008 Hanley Wood, LLC. Reproduced by permission. Complete city data from the Remodeling 2008–09  Cost vs. Value Report can be downloaded free at www.costvsvalue.com.

If you're buying a home built before 1978, you must know that your new home may very well have paint that contains lead (lead-based paint).  This type of paint can be hazardous to your health -- especially if paint chips are ingested, or if dust from lead-based paint is breathed.  Lead-based paint is more dangerous for children than adults because they are more likely to put their hands in their mouths, their bodies absorb more lead, and because their brains and nervous systems are more sensitive to the damaging effects of lead.

So, what's a buyer to do?

I have worked with buyer clients who decided not to buy a home built before 1978 because they didn't want to live with the possibility that lead might exist in the paint.  If you see this issue in that way, it's probably not worthwhile to even go look at potential homes if they are built prior to 1978.

Other clients that I have worked with are comfortable buying a home built before 1978, but thoroughly educate themselves on the risks and the precautions they should take.

The principal fact to remember is that if you are engaging in renovations or remodeling that will disturb the paint (chipping, scraping, sanding), then you need to take precautions to protect yourself and your family. 

But what about the contract?

An astute home buyer will realize that the sales contract allows them to test for lead.  I haven't had a buyer engage in this testing, so I'm not too familiar with the process, but if you're buying a 1950's home, it wouldn't seem to me that you'd need to do testing to determine whether lead-based paint was present in the home. 

Additional Resources

Here are some additional resources from the EPA that may be helpful for you.

• Lead in Your Home: A Parent's Reference Guide
• Testing Your Home for Lead in Paint, Dust, and Soil
• Protect Your Family From Lead in Your Home
• The Lead-Based Paint Pre-Renovation Education Rule: A Handbook for Contractors, Property Mangers, and Maintenance Personnel
• Lead Paint Safety: A Field Guide for Painting, Home Maintenance, and Renovation Work

As I mentioned a few days ago, low interest rates are helping people in this area cut down their monthly housing costs.

And yet interest rates keep falling further --- according to MarketWatch:


What is remarkable is that the national average rate is always somewhat higher than you can acquire from a lender locally.  I reviewed a good faith estimate yesterday for a re-finance at 4.875% fixed for 30 years. 

If you'll definitely be buying in the next 3-6 months, now is a great time to consider doing so, given current rates.  And if you aren't looking to buy / sell, but you have a rate higher than 6%, you should definitely investigate the cost savings of re-financing.

Several exciting upgrades to my web site have been in the works, the first a convenient mortgage calculator, and now we have added the ability to search by price per square foot via the Power Search on my web site.

Think about it for moment --- you've always been able to limit the price range, or your square footage range, but now you can limit your search results to those where you are buying at a particular price relative to the size of the home.

A few potential applications:

• Looking for the best deals?  Search only using the price/SF criteria to discover where you have the most buying power.
• Know your price range, SF needs, bedroom needs, etc., but want to get the most value?  Sort by price/SF using the drop down Sort function.

One significant disclaimer:

• If you search by price/SF you may leave out some search results that have value outside of their finished square footage --- perhaps a large unfinished basement, or a larger building lot, or river access, etc.

Have fun with this new search tool, and let me know if you have any other suggestions for improvements to searching for properties on my web site.

Credit where credit is due:  I didn't think of this new search tool all on my own -- the idea was born in a conversation with Amar Gogia at Scripture Communities.  Thanks Amar!

Peruse my most recent monthly market report and you're certain to notice that our market (Harrisonburg & Rockingham County) has a very large supply of homes priced above $400,000.  In fact, at the rate these homes are currently selling (54 sold so far in 2008), it would take 26 months to sell them all (117 are currently for sale).

However, this doesn't necessarily mean that high priced homes are not selling, or that those sales have dropped dramatically compared to the rest of the market. 

The graph below shows the total number of single family home sales in Harrisonburg and Rockingham County over the past five years...



As you can see, there has been a 40% decline in single family home sales between 2004 and 2008 in Harrisonburg and Rockingham County.

The graph below shows the total number of single family home sales above $400,000 in Harrisonburg and Rockingham County over the past five years...



It may come as a surprise that there has been a 32% increase between 2004 and 2008 in home sales of those single family homes priced above $400,000.  The other factor at play here, however, is that homes have increased in value since 2004, so comparing these two charts isn't a perfect statistical analysis.  However, this does drive home the fact that indeed high priced homes are still selling in our market.

Here's an insightful article from yesterday's Daily News Record that uses a local example to show what a significant impact current interest rates can have on a family.

Depending on your financial picture, some borrowers are currently obtaining fixed-rate mortgages at or below 5.0%, and some local lenders that I have talked to expect that rates should stay at (or just below) 5.0% into the near-term future.

Even if you aren't looking to buy a home right now, this can be a great time to examine potential savings from refinancing.

Thanks to John for this insightful comment...  "A great cliche about the housing market (and the stock market, too): Most people get in too late, and they get out too late. The second mistake has already been made by most. Don't let the first happen, too."

John also suggests that "Trying to call a housing market bottom is folly."

With that in mind, let's entertain ourselves by making wild guesses about December sales figures.  :)  November's market report will give you a context for your guess.  There were only 40 residential sales in Harrisonburg and Rockingham County last month.  How many will we see in December?  30? 50? 75?

The closest guess will receive a small, but delightful, gift certificate to Old Dominion Coffee Company in downtown Harrisonburg.  Feel free to leave your guess in the comment section below, or send me an e-mail.

One of my clients forwarded me a story from the Atlanta Journal-Constitution, which discusses new Fannie Mae and Freddie Mac rules that states that Fannie and Freddie will only back up to four real estate loans by one person. 

This new four-loan rule apparently replaced a previous limit of 10 loans, and was is in place to keep inexperienced or start-up real estate investors from over-investing.  The four-loan limit does not allow for any exceptions for income, assets or credit scores.

In checking with a local lender, I was told that if a borrower has more than 4 non-owner-occupied homes and a primary residence, no one but a commercial lender can help them on their next investment purchase. 

So, what is the solution??  One option is to move several existing residential investment loans into a commercial "blanket loan" thus removing residential loans from their balance sheet. Commercial loans on residential properties don't count against the four loan limit if they are in an LLC.

If any lenders or investors know of any other options with this new loan limit, please let me know!

My brother-in-law works for the Harrisonburg City Police, which makes me feel safe, but let's check another source....

Sperling's Best Places ranks cities and towns on factors such as cost of living, schools, crime, climate, and more.  In the fifth annual report, Harrisonburg ranks #8 for small towns (less than 150,000 residents)!

How is this all determined? 

According to BestPlaces.net...  "The rankings took into consideration crime statistics, extreme weather, risk of natural disasters, environmental hazards, terrorism threats, air quality, life expectancy and job loss numbers in 379 U.S. municipalities."

After yesterday's analysis of year-to-year residential sales in Harrisonburg and Rockingham County, I thought it might be interesting to compare similar sales trends in sub-markets in Rockingham County. 

Here's what I found . . .

All kinds of news over the last few days related to our local real estate market and our local economy...

Bridgewater annexes 45 acres for new housing development

Office Depot closes 112 stores including Harrisonburg's

Site on Port Republic Road approves residential to commercial rezoning

Public hearing to determine outcome of age-targeted development in Elkton

In talking to a client last evening, I was asked why our local real estate market isn't doing as poorly as some others in the region or across the country.  Some real estate markets have seen a 30% to 40% decline in home pricing, and we haven't seen that here.  After talking for a few minutes about the strength of our local economy, I was then asked whether people are even buying homes right now in the midst of such turbulent economic times in our country.  They are, although it is at a slower pace, and we began to contemplate why that might be.

My conclusion is that LIFE is the trump card --- it explains why even amidst troubling economic times in our nation, people are buying houses in the Shenandoah Valley.  Here are some of the reasons why....

• People are moving into the Harrisonburg area with new jobs -- many of them aren't going to rent a house while they wait to see how January's stimulus package will affect the economy -- they are going to buy a house, and they'll buy it now.
• Babies are being born, and as families grow sometimes a larger house is needed.  Many of these families aren't going to stay squeezed in their current home until the stock market goes up -- they are going to buy a new, larger house, and they'll buy it now.
• Individuals and couples are retiring to the Shenandoah Valley -- many of them aren't going to rent a house because they want to wait and see if the American auto manufacturers will get bailed out -- they are going to buy their retirement home, and they'll buy it now.

There are plenty of other reasons why people are buying homes amidst troubling economic times in our nation -- and I am not suggesting that everyone is, or should considering buying a home right now.  But for those that wonder what is keeping our local real estate market moving forward without significant price drops, I believe it is simply LIFE.

My son played in the City's Shenandoah Valley United soccer program this fall, so we had plenty of opportunities to go use Harrisonburg's first roundabout -- if you haven't checked it out in person, you should --- it is a wonderful experience!  But perhaps you'd like to practice online first?

Driving on the roundabout is actually a bit addicting --- sometimes my son and I drove around it multiple times --- just for the thrill of it! 

Each month I conduct a thorough analysis of home sales, but most of my analysis takes a look at a monthly snapshot.  Thus, at the request of one of my blog readers, I have compiled the monthly data to show a bit more clearly how the Harrisonburg and Rockingham County market has changed from year to year over the past six years.



Bear in mind that all of these charts show 2008 data through December 9, 2008 --- so there will still be a more sales before the 2008 data set is closed out.

We have seen decreases from 2005 through 2008 --- who wants to guess, will 2009 be an increase over 2008, or will we have to wait for 2010 for an increase?



Single family home sales, as we might have imagined, follow a similar trend line to the first graph that showed all residential sales.



One peculiarity seen here is that there was a sharp increase between 2004 and 2005 in the number of townhouse sales.  I suppose 2005 was the year of the townhouse!

As I mentioned yesterday, when interviewed by WHSV, there is still somewhat of a stalemate of buyers and sellers. Some sellers are holding their prices a little higher than perhaps they should be priced, and some buyers are not wanting to try to negotiate.So, you have that gap that likely could be bridged, but it just isn't happening. 

I tried to encourage buyers to make that first move yesterday, and in the past I've pointed out that sellers can make offers, but here are a few perspectives that sellers should consider in our current market.

1. This is not the most wonderful time to sell your home, as there are many more sellers in the market than there are buyers.  That doesn't mean you'll have to sell at a loss, and it doesn't mean that your house won't get snatched right up the first week it is on the market --- but if you don't have to sell right now, you might consider waiting until we have a more balanced market.
    
   
2. If you have to sell your home, or you really want to sell your home, you must price your home "correctly" from the start.  If your home sits on the market for several months with an overly optimistic asking price --- and nobody bites --- you're likely in for a long ride, with several price reductions and an improbable sale.  In a buyers market more than any other time, buyers are skeptical of homes that have been sitting on the market for a long time.  You must put your best asking price on your house at the start, your Realtor should market the home like crazy and follow up aggressively with any interested buyers.
    
   
3. Even though I told you to put your best asking price on your home from the start, you still must be prepared to negotiate, at least a little.  Even with a very well-priced home in today's market, buyers have a hard time paying full price or very close to that asking price.  With that optimal price on your home from the start, you'll still likely have to engage in some "token negotiation" so that the buyer knows and/or feels that they are getting a good deal on the house.
    
   
4. More than anything else (and this one is a bit out of order), you need to know your segment of the real estate market!  As you price your home, as your home is marketed, and as you negotiate an offer, you must be aware of the other homes on the market that you are "competing" with, and also the other homes on the market that have recently sold and now affect the value of your home.  This knowledge will educate your pricing and process, and is essential for any seller in today's buyers market.

Earlier I noted that you shouldn't sell your house right now if you don't have to or really want to.  And yet, even in this market, you can sell it relatively quickly and at a good price.  But to do so, you'll need to know the market, price the house "right", market it thoroughly, follow up aggressively, and negotiate wisely!