Ethical Homes

The latest news on real estate in the metro DC area.

Market Trends

• Nationally, according to data recently released by OFHEO, home price appreciation slowed in the third quarter of 2005, matching the local slowdown that we experienced here. Meanwhile, the NAR predicts that sales of existing homes will continue to slow in 2006, although that is only a relative slowdown—NAR still expects the median price for homes nationally to increase by 6.1% next year.
• Locally, the Metropolitan Washington Council of Governments issued its latest forecast on the local real estate market. MWCOG’s data confirms that chances of a market crash are small, as supply is still far outstripped by demand and the trend is expected to continue for at least the next 25 years based on current growth patterns; my own estimate based on research and discussions with local experts is that we will see 4-7% annual growth in housing prices in 2006, w/ the upswing starting in earnest in March.
• At the recent MWCOG Annual Meeting, local researcher Robert Lang made news with a (fairly reasonable) prediction that given current growth, it’s only a matter of time until the metro DC housing market will stretch from Baltimore to Norfolk.
• Getting back to the present market, the Post reports on another horror story about a buyer who didn’t have an inspection prior to buying; the story itself is nothing novel, but it is worth noting that many of the agents and inspectors interviewed in the article seem to feel that the market still isn’t ready for buyers to have inspections. Until those agents do come to their senses, buyers should still be cautious if they are told that they need to skip an inspection in order to be able to buy; even during the height of the recent seller’s market, prudent buyers could and did insist on inspections—I’m proud to say that not a single one of my buyers in the last 2 years opted to forgo an inspection, and all of them managed to purchase properties successfully.
• John Handley of the Chicago Tribune reports on how rising energy costs will lead to increased demand for smaller homes; in related news, new tax credits for adding energy-efficient features to homes will go into effect on January 1, 2006.

Loans and Rates

• After a relatively quiet week that left rates mostly untouched, the Fed raised the federal funds rate again—and rates fell slightly as a result, because the Fed also gave indications that it sees an end in sight to continued rate hikes; as the Wall Street Journal explains, current rates had already factored in continued rate hikes in the future, so the downward adjustment to current rates was in anticipation of a less-negative future market for loans. In the big picture, though, rates continue to creep up, and are expected to do so for at least the next few months.
• Locally, rates stayed fairly stable; I’m currently seeing 30-year fixed loans at 6.125% (down an eighth from the last update), and 3/1 ARMs at 5.875% (the same as two weeks ago).
• The US Comptroller of the Currency warned banks about the ongoing dangers of specialty mortgages such as interest-only and option ARMs; echoing the same note, investment analyst Fitch Ratings predicts a 10-15% rise in mortgage delinquencies in 2006, driven in part by higher interest rates affecting “sub-prime” borrowers who will have to contend with adjusting rates on ARMs. While I agree that specialty mortgages can be extremely risky if used improperly, I continue to see many buyers for whom such loans make sense; for buyers for whom option ARMs and the like don’t make sense, the increasingly-popular 40-year mortgage (or even the forthcoming 50-year mortgage) might be a reasonable option. As always, of course, buyers should evaluate their entire situation with a trusted professional who will discuss the pros and cons of each option with them before choosing (or ruling out) any particular loan package.
• The market for “reverse mortgages” (where homeowners over age 62 can borrow against their equity in their home and not have to pay the loan back until after they die and their home is sold) continues to grow, in part because of the growing number of baby boomers taking out reverse mortgages to improve their lifestyle during retirement. HUD currently caps the number of such loans issued each year at 250,000, so this flood of “lifestyle reverse mortgagers” could prevent some seniors from getting reverse mortgages that they might need to just pay the bills, prompting the US House of Representatives to pass legislation lifting the cap on the number of reverse mortgages issued each year.

Legal and Regulatory News

• By law, real estate agents have a fairly large number of obligations to their clients. Discount brokerages cannot fulfill those obligations while still providing the limited service on which their business models are based, so up until now, they have been forced to work without any agency agreements, leaving consumers completely unprotected by agency laws;in response, the VAR has worked with state legislators to create a new class of “limited service agency” that will allow discount brokerages to provide services while still providing some level of protection and disclosure to consumers.