Today I received the call from the selling agent on the short sale I'm handling.  It was coming down to the wire...or so I thought.  The call was regarding the appraisal.  It came in 22,000 below the contract price (net).  Now what?  This saga has been going on now for about 4 months.  Now I will have to go back to the Bank and ask for a lower price.  The buyer has put in an offer at the appraisal price but wants to keep the 9,000 closing cost credit.  I find it hard to believe that the bank will approve it.  What did I do?  I asked for a copy of the appraisal stating the value, a copy of the home inspection release form and the form for releasing the appraisal contingency.  I will be going over it with my client as soon as they provide these documents to me.  The already delayed closing was due to occur on Oct 7 so it is unlikely that it will happen.  Tomorrow I'll have to talk with my client about what comes next.  There should be a law against these things because it's like working for less than minimum wage.

Mortgage Fraud.  What is mortgage fraud?  There are so many different types of fraud it really doesn't do it justice to explain it here.  I've decided to write about one case where a friend was given a bridge loan to buy a house from the equity he had in his condo.  In order to get the loan, the mortage broker with SunTrust Bank suggested he go out and get a lease for his condo for $3000.00.  This was fine until he suggested that they go get another friend to sign a lease for this amount.  Condos his size rent for about $1,600. Here we have a bank officer telling a client to get a lease signed by a friend (not actually planning on living in the condo) to justify the larger mortgage.  This is where I came in.  I recommended that my friend not do that.  He listened.  However, he did continue to get a mortgage with the bridge loan and then got stuck owning two properties.  Ultimately to make a long story short, he had to pay $40000 when he sold his condo.  This is just one story in real life, however, many people are finding themselves in this same or a similar predicament.  Some can afford to pay the difference and some cannot.  Some must go to the bank and ask for a short sale.  Some must go straight to forclosure.  The down cycle is not done and there are many of these situations that still have to be washed out of the system.  Then we will start all over again.  This is why we call it a business cycle.

The Northern Virginia market is ahead of most other markets.  Watch what happens in Northern Virginia and you will see trends that will likely occur in most other parts of the nation.  Right now the prices are still coming down on resales, rents are somewhat stagnant or increasing slightly and overall sales are down.  There are still many homes pent up into a bad market and they have not all washed themselves out.  We are now getting more and more management referrals because people just can't sell their home.  From a Time Value of Money standpoint, it might make more sense to rent then sell in this market.  The amount you will lose by renting over the next several years will be far lower then if you sell you home at a loss today.  Of course, it all depends on what you paid for the home and when you bought it.

It's very interesting that you try to discredit my historical perspective.  One only has to look at the public record of historical transactions back sixty years or however far back your records go to come to the same conclusion I've come to.  Tracking the value in particular neighborhoods or particular areas it is fairly easy to see the market cycles from peak to trough.  Properties average prices double every 12 years.  The rule of 72 backs up this analysis.  Our area has an average price appreciation of 7% going back to the 1960's when many public records began to take shape.  Using this average increase of 7% and the rule of 72 (an economic indication of how long it takes for compounding value to double), we find that property does indeed increase its value by 100% every 12 years.  The difference between true professionals and amatuers in real estate is understanding how this works.  There are many micro economic factors that effect the short term, but the long term factors are time proven.  I've always thought that the NAR Economists were wrong on the long term.  David Lereah recently wrote a book about how real estate values will go up forever.  This is true from a macro economic perspective, but fails to address the short term corrections that are inevitable in any mark.  Business 101 teaches about the market cycle. 

 Over a period of 12 years we are talking averages.  If a property goes up 20% in value one year and goes down 10% the next.  The average Increase is 5% over two years.  If a property averages an increase of 15% for five years and a decrease of 5% for 5 years, what is the average price appreciation over the entire 10 year period.  I've never agreed with what the NAR economists have said, but you have to look at the person and why they are saying what they are saying.  It benefits Realtors for David Lereah to state that prices will go up forever.  Why?  Because nobody would buy property if they thought they would lose value from the start.  So, now that reality has set in that in most markets real estate prices are on the decline, nobody wants to buy.  I think this is the best time to buy.  Interest rates are still low and I can find properties priced at a discount of 25% of value.  Still, it will be even better to buy in a year or two when the property values are adjusted the full 30% I've previously mentioned.

 ONE of the best skills we can have is to listen.  One of the next best skills we can have is to understand.  Most people don't have the capacity to truly understand the relative nature of the market as I'm describing.  This is considered the "fourth demension" in physics as opposed to two demensions or three demensional.  Oh, by the way, the earth is not flat!

 You don't have to see what I'm telling you, but you will never benefit by its truth because it is in fact true.  This understanding is what sets apart the true professionals from the amatuers, the true long money makers from the the short term fee based, transaction based realtors.  The next time you cross a real estate investor who has made millions investing in real estate, ask them why they don't sell homes.

 David Lereah says what he says to help you sell homes.  After all, he works for you as a Realtor not the home owner who pays your commission.  Follow the money and you will find the truth!

 

Tom Bellanca

WHERE IS THE MARKET GOING?  History gives us the answer to this question.  Market Cycles in the D.C. area and nationwide tend to be about 12 years from peak to peak.  The market in Northern Virginia peaked out in August 2005 and then immediately trended downward.  Now we are exactly two years into this cycle!  One past cycle bottomed out following the stock market crash in 1987 in approximately 1996/7.  In this case, the peak was reached around 1992/3 and then headed south until 1997.  Properties were slowly bid down until the market bottomed again in 1997.  This peak to trough half cycle lasted approximately five years!  If this current cycle follows historical trends, we will see a bottom of the market in 2010.  Signs of a bottom will start to show in 2009 and the market will move sideways for two years.  Once the market bottoms, we will begin to see signs of upward momentum.  Momentum will be slight, but prices will tend higher.  Once prices tend higher, we will see a steady increase in price appreciation for a period of about five years.  Look for a peak in the financial markets, the DOW Jones Average or the S&P.  Currently these averages are increasing about 7% per year.  The real estate market is mirroring this 7% rate with a negative 7% rate.  Most of the declines in prices occured in the first year and now we are seeing a slow trickle downward in prices.  Prices will show a decline of around 30% from the peak in 2005 and the decline will last 5 or 6 years.  This means the negative market is nowhere near its bottom and we will have approximately 4 more years of pain before strength returns.  If you have any questions regarding these comments, please contact me at (703)855-8674 or by email at tombellanca@dullescorridor.us.  -Tom Bellanca

 Tom Bellanca currently is a licensed Real Estate Broker for Dulles Corridor Real Estate in Dulles, VA.  He also holds a Master's in International Finance from George Mason University, the Certified Commercial Investment Manager from the National Association of Realtors, and the Real Property Administrator designation from the Building Owners and Manager's Institute.