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Market Commentary
Hey home sellers: Meet the new buyers!
They’re discriminating and hard nosed. And they’re looking for a deal.
In today’s slow market, we hear a lot of real estate agents and home sellers saying “there just aren’t buyers out there.” Indeed, after strong real estate markets in 2004 and 2005, a definite chill has descended over the real estate market in 2006.
But let us make one important observation: There are buyers out there. Low interest rates and strong local economies have encouraged buyers to enter the market. At Corus Home Realty, our weekly inflow of new buyer clients has more than doubled since September. People are looking for homes.
However, these homebuyers have attitude. To a great extent, buyer visits to listed homes are accompanied by comments like “Nice house. How much do you think we can negotiate them down?” Or, the buyer may say “Let’s see if we can negotiate in some furniture, or the pool table.” Or, “The seller’s certainly going to pay my closing costs, right?” This is a pervasive attitude, and it’s here to stay. For properties settling during the month of December, settled prices of properties have averaged approximately 3% lower than their list prices (prior reductions in list price further increase the discount enjoyed by the purchaser.)
For homeowners who have grown accustomed to the big seller-oriented markets of 2004 and 2005, this can be a little jarring. It can also be disappointing to sellers who take a lot of pride in their homes. So, for home sellers, here is some advice.
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Don’t be insulted by a low offer.
They’re probably going to happen. But if the offer is lower than your
expectations, we encourage you to propose a counteroffer rather than just
ignoring the low offer. Many buyers will use a low offer to “feel out” the
seller’s flexibility. They may come up significantly in price during the
negotiation.
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Put extra effort into improving your home’s appearance.
Dated bathrooms, old appliances, and worn carpet all represent things that a
buyer will use to justify a low offer.
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Be willing to pay closing costs.
If the buyer asks for closing cost assistance as part of the offer, just
subtract that amount from the offer price to calculate your net. Within reason,
there is nothing wrong with including this as part of the deal.
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Price your home realistically.
If your home is one of many properties listed in your neighborhood, you must be
sure that your property is well priced relative to its peers. Among a group of
10 listings, if your property is not one of the 3 best priced in the group,
your buyer traffic will likely be low.
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The “wait it out” strategy won’t work.
We’ve heard many sellers refuse to negotiate, stating “We can keep our house on
the market for another 6 months, and we’ll certainly find a buyer willing to
pay list price during that time.” Know that the longer a property stays on the
market, the more aggressive potential buyers are likely to be.
Additionally, we offer some advice for buyers.
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Know that some homes are good deals at list price.
In this market, some eager sellers are pricing homes at the low end of the
market to ensure a quick sale. They’re good deals without further negotiation.
Potential buyers of these properties should check the comparables, and should
really determine whether the property is well priced. If this is the case,
don’t expect the seller to engage in heavy negotiation – look at a great deal
for what it is.
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Be opportunistic.
If a buyer is willing to consider several homes in a neighborhood, it makes
sense to see which seller is most willing to negotiate. You can play each one
against the others to get the best deal possible.
Market Commentary
Our predictions for the New Year
At Corus, here’s what we predict for the 2007 real estate market.
We may not be 100% correct, but our track record at spotting trends has been pretty good. So, we’ll go out on a limb and make some predictions for 2007:
Overall, 2007 shouldn’t be worse than 2006. This past year was difficult for real estate, with the market weakening considerably over prior years. In 2007, we don’t think that the market will slow further. It will likely remain flat, or may improve incrementally.
The Delaware Valley / Philadelphia market will recover quickly. In 2006, sales in the Delaware Valley weakened despite a steady economy, low interest rates, good housing affordability, and few changes in the market’s fundamentals. We believe this slowdown was driven by homebuyer sentiment, rather than weak market fundamentals. As homebuyers’ comfort levels increase, expect the market to rebound quickly.
We’ll still have a glut of condos. Throughout the Corus service area, thousands of new condos are continuing to come on-line. This oversupply will keep the condo market weak for some time.
Inventory will gradually tighten, but not for the reasons people expect. In some areas, 2006 home inventory levels averaged 100% to 200% above 2005 inventory levels. Since October, we’ve seen these inventory levels fall gradually. Certainly, some of this inventory has sold, but rental transactions have also played an important role. Many homeowners who have been unsuccessful in selling their homes have turned to the robust rental market. Although the homes haven’t been sold, the properties are removed from the sales inventory. We expect this trend to continue through the first half of 2007.
Interest rates should stay low, but we’re not sure. In the second and third quarter of 2006, 30-year fixed mortgage rates averaged 6.6%, according to the Mortgage Bankers Association (MBA.) Rates have declined since then. Going forward, the MBA forecasts (and we agree) that mortgage rates will remain below this 6.6% level throughout 2007. While this remains the likely scenario, uncertainty exists with regard to inflation, fuel prices, and mortgage delinquencies, all of which could create a higher rate environment.
Auction activity will increase. We predict that desperate sellers may begin turning to auctions as a way to sell their homes quickly. Not all auctions are bargains, but expect to see some good deals.
Local Markets: Philadelphia, Pennsylvania
In Philly, owning is cheaper.
Recent census data provides good news for Philadelphia-area homebuyers.
Real estate agents often tout the benefits of buying property, rather than renting. And to be honest, we’re big fans of homeownership. When the U.S. Census Bureau recently released its data regarding home affordability in Philadelphia, we took notice. The report made several important points:
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Among the 10 largest cities, Philadelphia is one of the costliest for renters
relative to their income.
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As a percentage of their income, homeowners in Philadelphia pay substantially
less than renters.
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Philadelphia home prices have not risen as significantly as in some other
cities, keeping homes relatively affordable to purchasers.
Lenders and real estate experts acknowledge that when housing costs exceed 30% of resident income (whether renting or owning) housing affordability is a problem. Residents can spend more than 30%, but other areas of the household budget can suffer.
In Philadelphia, homeowners spend a median of 22% of their income on housing. That’s higher than Baltimore, but lower than New York or Washington, DC. Relative to the 30% figure, it shows that in terms of home purchasing, Philadelphia is a very affordable city.
By contrast, 52% of Philadelphia renters spend more than 30% of their income on housing. The median share of income that Philadelphia’s renters spend on housing is 34%. Among large cities, this figure is second only to Los Angeles. So, on a relative basis, rents in Washington, Baltimore, and even New York are more affordable than in Philadelphia.
Still, buying a home isn’t for everyone. Residents who need flexibility, or who intend to stay in their homes for less than two years should rent rather than buy. But for those of you on the fence, the Census Bureau’s data represents an interesting argument for homeownership.
Local Developments: Suburban Maryland
A new Metro Purple Line?
Momentum seems to be quickly gathering behind some type of transportation link between Montgomery and Prince George’s County.
Is there going to be a “purple line” linking Bethesda in Montgomery County with New Carrolton in Prince George’s County? If the debates that occurred during Maryland’s recent Gubernatorial Election are any indication, there appears to be a new groundswell of support for construction of new mass transit to help ease congestion in the Maryland Suburbs.
Governer-elect O’Malley publicly stated his support of a Metro link constructed around the Maryland’s suburbs to the north of Washington, DC. In addition to the governor’s race, it is reported that well over 100 candidates for elected office in Montgomery County and Prince George’s County have pledged their support during the most recent election.
This Metro line, often referred to as the “Purple Line” would run 14 miles from Bethesda in Montgomery County to New Carrollton in Prince George’s County. Maryland Transportation Secretary Robert L. Flanagan said that the Purple Line is one of the top three transit priorities and that Maryland has committed $120 million to it and related projects. If approved, construction could begin in 2010 and an environmental impact study is currently underway.
The Maryland-National Capital Area Park and Planning Commission (M-NCPPC) reports on its website that, “The Bi-County Transitway Study being conducted by the Maryland Transit Administration (MTA) examines various alternatives for providing bus or light rail service from the Bethesda Metro Station to the New Carrollton Metro Station via the Silver Spring Metro Station and the University of Maryland. The study is currently focused on finalizing the set of alternatives.”
The MTA is looking at a variety of options, including bus rapid transit using portions of existing roads and alternative routes. The M-NCPPC suggests that “A Draft Environmental Impact Study should be completed in late 2006 or early 2007. A decision on a locally preferred alternative should be made in the Spring of 2007 with the Final Environmental Impact Statement completed in the Fall of 2008.”
Purple Line opponents worry that such a project could destroy the nearby Capital Crescent Trail, a bicycle trail popular with locals. Many residents have said that they would be more amenable to an underground heavy-rail system similar to what Metro uses, instead of a surface-level transit system.
Yet mass transit systems such as these are expensive, and it is difficult to secure funding for them, either at the local, state, or federal level. In Virginia, the difficulties in funding the Orange Line extension to Dulles Airport certainly illustrate these challenges. And just last year, Maryland Governor Robert Ehrlich finally approved construction of the Intercounty Connector, a significant new transportation artery connecting I-270 in Rockville with Interstate 95 after much debate with regard to funding and environmental impact. It is possible that the State of Maryland’s renewed focus on easing area traffic may help move this project steadily forward.
Notable Homes: Philadelphia, Pennsylvania
401 Gilham Street: A home with real history.
It’s not just a home. It’s a manifestation of the American dream.
For Sale: 401 Gilham Street, Lawndale. $349,900
When is a home more than just a home? When it’s got a great history behind it. We were inspired by the history of this home, currently listed for sale by Corus Home Realty.
Back in 1885, three brothers decided to migrate from England to start a new life in the United States. The two older brothers were carpenters and the youngest brother was a mason. The two older brothers were married but their wives had told them they would not come to America until they had a home there in which they could raise their children properly. So, the three brothers set off for America without their wives. They arrived in Philadelphia and set off to build their new home. They found property and proceeded to build the home – by hand. Each door was milled by hand and each window was individually shaped by the three brothers. It took them 2.5 years to build the three story house that now stands at 401 Gilham Street. By the fall of 1887, the home was completed, and the brothers brought their families to America. They then proceeded to build another home for the second brother, 3 years later. The youngest brother (the mason) built the house next door approximately 15-20 years later.
For this home, the wood of choice was the Chestnut Tree. It was considered to be a good building material because it was stronger than pine or maple and naturally resistant to rot, termites and insects. The wood structure consists of 3x4 and 4x4 timber for the wall construction and 2.5 x 9 floor joists. The main beam in the basement is (3) 3.5 x 9 laminated wood. The walls are lath and plaster with a thin finish coat. The front half of the house is 15” of brick and the remainder is wood construction.
The family owned the home for 100 years, selling it in 1987 to the current owners.
Much of the home has remained original with hardwood flooring and custom millwork. This home has over 3400 square feet of living space on three floors. The third floor has been used as an efficiency apartment/in-law suite. It features 5 bedrooms, 2.5 baths, and a detached 1 car garage. The property consists of 0.22 acres.
Interested? Contact Kathy Davila of Corus Home Realty’s Pennsylvania team at (610) 825-3225, or via email at kathy.davila@corushome.com.
Notable Homes: McLean, Virginia
6616 Ivy Hill: A home design we like.
This McLean, Virginia luxury home illustrates a few trends in new home layout.
For Sale: 6616 Ivy Hill Drive, McLean, VA 22101, $1,675,000.
We like 6616 Ivy Hill Drive. At $1.675 million, it’s not cheap. But we do think it represents excellent value for a new home in McLean, one of the most expensive suburbs of Washington, DC. Much of this value has to do with the layout of the home’s large interior space (approx 7000 square feet.) The home is very traditional in its look, but in this home’s layout, we see several luxury home elements that we think you’ll be seeing more of in the next few years.
The family room is truly the focus of the home. It’s approximately 20 feet wide, 20 feet deep, and 20 feet high – an 8000 cubic foot square. It’s in the center of the home, with the other rooms of the house (on both levels) surrounding the family room on either side. But when families spend the majority of their time in the family room, doesn’t this make sense?
The kitchen complements the family room. It’s entirely open to the family room, and is larger in total square footage, featuring a cooking island, breakfast bar, and morning room. As with the family room, this is a place where families spend most of their time, so its place and size make sense in this context.
The home has a generous quantity of windows. Over the last 15 years, homes have been built with increasingly more windows, and those windows have become larger. This house goes to the next level – much of the home’s backside is glass. The family room has windows on 2 stories, the kitchen has a wall of windows, and the study has substantial windows on two sides.
The master bedroom suite is a point of emphasis. Over the last 20 years, master bedrooms have become more luxurious, with multiple walk-in closets, soaking tubs, large dual vanities, and tray ceilings. This home’s master bedroom suite includes all of those things, but also has some additional elements. It includes a 2-sided gas fireplace and a separate sitting room. Furthermore, it has a marble butler’s pantry with a refrigerator and microwave. We think it’s a great idea – coffee and orange juice at your fingertips while you’re getting ready in the morning.
The home is located on a quiet street, and does have a substantial yard. (Among newer homes in McLean, these things aren’t taken for granted.) It’s in the sought-after McLean High School district and is a short drive from the West Falls Church Metro. Its neighborhood – Chesterbrook Gardens – is one of McLean’s older, more modest neighborhoods. However, this home is part of a wave of infill development occurring throughout the neighborhood. Several surrounding homes are also being torn down and rebuilt as luxury homes.
For more information about 6616 Ivy Hill Drive, contact Eric Rossum at 703-827-0075 x1206 or via email at eric@corushome.com.
Corus News
Neighborhood Specialists: Over 100 and counting.
Our growing army of neighborhood experts provides a valuable resource.
In conjunction with our launch of our RealtyInstitute.com web site, we’ve been recruiting individuals to serve as Neighborhood Specialists for each of the zip codes covered by the site. We’re happy to report that our Neighborhood Specialist count is over 100.
Having the ability to introduce potential homebuyers to individuals who actually live in the neighborhoods that the homebuyers are considering is a valuable, unique service. Although our Corus agents have strong knowledge of most neighborhoods throughout our service area, the personal insight provided by Neighborhood Specialists provides an important complement to the information we provide.
Are you interested in becoming a Neighborhood Specialist? It’s fun, you can meet people, and a real estate license is not required. You can also make money – a portion of the revenues from transactions generated through the RealtyInstitute.com web site are placed into a profit sharing pool. Those profits are shared among the Neighborhood Specialists on a quarterly basis.
For more information, contact Sarah Bough at 888.81.CORUS or at sarah.bough@corushome.com.
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