Analysis
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It's A Tough Time To Be Pricing Real Estate As A Seller |
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You just can't win! The experience I'm having, on the ground, is this:
For our example, let's assume that the three most recent comparable sales are $220k, $225k and $230k. Certainly, this would indicate that the value is quite likely $225k based on what has recently sold. Then, if we look at what's available now, we might find something priced at $225k, $235k and $240k. Conventional wisdom would thus suggest that we price the house at either $229,900 ($230k) or $234,900 ($235k). This would allow for some negotiating room down to the perceived value of $225,000, and yet would still be appealing compared to other properties that are currently available. What I'm seeing these days is that if you're priced above the perceived value, you often will get traffic, but not offers. Thus, if the home is priced at $230k or $235k buyers will come to look at the home, but they won't make an offer because they perceive the value to be $225k, expect to thus pay $215k to $220k, and then don't make an offer because it would require $10k to $20k of negotiating. If we accept all of that to be (generally) true, the next logical step is to list the property at either $224,900 ($225k), or perhaps even $219,900 ($220k) depending on how motivated you are to move the property. But the problem here is that you'll then likely have buyers who want to pay $210k or $215k --- WAY below where you perceive the value to exist. Just to bounce back to that "value" (because some people would question it) --- if your three neighbors just sold for $220k, $225k and $230k, would you really reasonably think you'd have to sell at $210k or $215k to make the sale?? What is a seller to do? It is a tough call in any regard --- my counsel in a real live scenario differs from client to client and from property to property depending on the urgency of a homeowner's situation, the particular comparable competing properties, etc. There are ways to successfully navigate this market as a home seller, but they require careful analysis, and patience. | |
The October 2009 Harrisonburg and Rockingham County Real Estate Market Update . . . for auditory learners. |
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Enjoy this brief video segment discussing real estate market conditions in Harrisonburg and Rockingham County as of the close of October. What do you think? Why has our market remained stable? What will we see for the balance of 2009? | |
Has The First-Time Buyer Tax Credit Pulled More Buyers Into The Market In Harrisonburg, Rockingham County? |
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Warning: This analysis, though numerically and statistically based, is an abstract answer to a nearly impossible question. The question, raised today by Chad, is whether the first-time buyer tax credit (that was set to end on November 30, 2009 but has now been extended) has pulled any additional buyers into the market. I say.....maybe, but.... The chart above shows how I attempted to answer that question. For each year between 2000 and 2009, I determined the percentage of home sales that were at or below 80% of the median sales price that year. We can assume that most first time buyers are going to be in that general price range (under $93k for 2000, and under $152k for 2009). The chart, thus, shows how that segment of the market has fluctuated in relative size over the decade that is coming to a close. As you'll notice, the portion of supposed first-time buyers dropped off between 2005 and 2007 --- likely because home prices were increasing (mostly between 2005 and 2006) and lending requirements were becoming more restrictive (mostly between 2006 and 2007). But....the trend then reverses starting in 2008, and then continues in that new trajectory in 2009. There are thus (perhaps) more first-time buyers in our market today because of the tax credit, then there otherwise would have been. Yes, I know --- lots of mental leaps there. The additional caveat that I offered Chad is that while I believe the first-time home buyer tax credit did and is pulling buyers into the market now who might have otherwise waited until 2010 or 2011 to purchase --- I also think there have been first-time buyers that would have purchased in 2008 and 2009 that were waiting because of the economy. Thus --- the tax credit is borrowing buyers from the future who really would have been today's buyer anyhow. Again --- all of this is largely speculative, as I can't truly tell you the number of first-time buyers in our market, but hopefully this analysis sheds a bit of light on the topic. I welcome your suggestions for additional analysis to answer this question. | |
October 2009 Harrisonburg & Rockingham County Real Estate Market Report - Sales Steady, Prices Inch Lower |
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I just published my monthly market report on Harrisonburg and Rockingham County. Read on for a summary, or jump right into the report by reading it online or downloading the PDF. Just a year ago, I was reporting that when comparing Jan-Oct 2007 to Jan-Oct 2008:
The decline in median and average sales price is also quite troubling --- at first --- until we put that into the context of how home values have changed in other parts of Virginia and the United States. First, though, I do understand that every homeowner wants the value of their home to increase, always, every year, without exception --- and I don't fault you for that desire. That being said --- home values in our nation have declined quite significantly over the past several years, and many markets in Virignia also saw those drastic declines. Yet, somehow, the Shenandoah Valley (thus far) has remained largely unscathed. We have seen a slight, slow decline in home values (as measured by median and average sales price), but home values increased 51% between 2003 and 2006 and have only declined 1.5% between 2006 and 2009. Let me repeat that for emphasis, because it is astonishing given what has happened nearly every other housing market in the nation.... Home values in Harrisonburg and Rockingham County increased 51% between 2003 and 2006, yet have only declined 1.5% between 2006 and 2009. What does the future hold, you might ask? I showcased a few scenarios last week which you can review here. Beyond the numbers, I believe we will continue to see small declines in home values over the next 12 months, and that over the next 6 to 18 months we will see the pace of sales start to solidify and then slowly increase. To learn more about the details of our local housing market, review the entire October 2009 Harrisonburg & Rockingham County Real Estate Market Report: Read Report Online | Download PDF. If you find the information in this report to be helpful....
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What is, isn't, and will be (or not) in the Harrisonburg and Rockingham County real estate market |
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Each month I publish a real estate market report for Harrisonburg and Rockingham County, which includes this graph: Overly simplified, you'll notice in this graph that sales are slow, but prices are steady: Certainly better than the many markets (even in Virginia) where the pace of sales is increasing, but prices took a huge hit: At the same time, our market could have transitioned more gracefully than it did --- perhaps if prices had dropped a bit more, sales wouldn't have slowed down so much: The big question now, is WHAT IS NEXT for our local real estate market. I think another big drop in sales and a significant drop in prices is likely overly pessimistic: Yet it's also probably too optimistic to think we'll see sales pace and prices rebound overnight: My best guess? We'll see another year of negligible changes in price, but we'll see a small increase in sales pace: But what do YOU think?? ** Of note, the 2009 bar is extrapolated from Jan-Sept 2009 sales. | |
Predicting Home Sales Using Online Property Views |
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Can we predict home sales by examining the number of properties viewed on the network of Coldwell Banker Funkhouser Realtors web sites? Possibly.... Above you'll see a graph that tracks home sales per month in tandem with the number of properties viewed each month on the Coldwell Banker Funkhouser Realtors network of web sites (my web site, the company web site, all other agent web sites). I think there does seem to be a general correlation between the two sets of data. That being the case, we should expect to see home sales level out or decline as we move into the next few months --- which is winter, and typically slow. However ---- an extension and expansion of the home buyers tax credit is being considered, which, if passed, could incent more buyers to get into the market, causing an increase instead of a decrease in the number of home sales in Harrisonburg and Rockingham County. | |
Are Smaller Homes Faring Better Than The Overall Market In Harrisonburg and Rockingham County? |
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My hypothesis was that smaller homes were performing better in Harrisonburg and Rockingham County than the market at large. After all, there is a significantly greater supply of homes for sale in the higher price ranges --- which would suggest that the real winners are the lower priced and smaller homes. Plus, the $7500 followed by $8000 tax credits were certain to bring lots of new buyers into this segment of the market.... The data, however, shows otherwise.... As shown above, the overall market experienced a 44% drop in home sales between 2005 and 2008. However.... As shown above, the market defined as homes with less than 1,500 square feet experienced a 47% drop in home sales during the same time period. Now, let's look at prices.... As shown above, median sales prices of all residential properties have decreased by 1.5% between 2006 and 2009. However.... As shown above, the market defined as homes with less than 1,500 square feet experienced a 4.5% drop in median sales price during the same time period. How could this be?? The best explanations for this (slightly) lower performing segment of the market (1,500 SF or less) that I can offer are....
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Price Right From The Start, Unless You Find Great Joy In Waiting |
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As referenced yesterday, we're seeing quite a few price changes --- nearly 700 so far in 2009 --- so let's examine why they are happening, and whether they are necessary. First, most (but not all) price changes are reductions. Price reductions happen primarily because a house isn't selling at the existing asking price, and the hope is that more interest and activity (and perhaps an offer??) will be generated by lowering the price. Put another way, a price reduction is an indication that the original asking price was too high. So.....why is it so important to get your price right from the get go? Mainly because if you don't, you're house will sit on the market until you do. That's right --- my slightly scientific analysis (below) indicates that your house won't sell until you get the asking price set properly. It's a long and arduous task to examine price reductions in detail via our Multiple Listing Service, so I was only able to analyze trends based on a small sample size --- the 60 most recent home sales in Harrisonburg and Rockingham County. Here's what I found.... The 35 homes that did not reduce their asking price:
Thus, if a home is "worth" $200k, there would be two options:
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Sellers Must Really Be Dropping Their Prices, Right??? |
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Sort of....but maybe not effectively?? The chart below shows the number of price changes per year of homes that have sold for each of the past nine years. Some houses that sold may have had multiple price changes --- these figures show the total number of price changes, counting each change on each property. There was a sharp increase (+29%) in price changes in 2006 (compared to 2005), which would be expected because it was the first year of a reduced number of home sales. However, there was also a sharp increase (+22%) in 2005 (compared to 2005) when the market was still peaking. Perhaps of even more interest is that the number of price reductions per year has slowly decreased over the past several years (-4% in 2007, -7% in 2008). This may be explained by the declining number of home sales, as the number of price changes shown above only accounts for price changes of listings that have sold. This year there have been approximately 600 home sales, and roughly 200 price changes of those homes that have sold . . . but nearly 700 price changes when we include the many houses that are still on the market. Stay tuned for more analysis of how price changes affect the sale of your house. | |
Is Harrisonburg Nearing Break Even Again On 80% LTV Investment Properties With Conservative Calculations? |
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Many (many, many, many) townhouses were built in Harrisonburg between 2002 and 2007. They are still being built, but not at the same pace. The principal reason for this shift in building is that home values increased faster than rental rates. As such, a smaller and smaller pool of investors are considering purchasing townhomes as income generating properties --- though that may be changing again. Let's see how things compare when buying an income generating property in 2002 versus today. In 2002, a new two-story townhome in the City could be purchased for roughly $100,000, and rented for approximately $725/month. Here's how the annual cash flow looks: + $8,338 of rental income ($725 x 11.5 months) As you can see, this is a barely break even scenario using the conservative calculations above, though more positive cash flow was achieved by most investors by managing the properties by themselves, and because very few repairs were needed.- $5,916 for mortgage payments (80% LTV at 6.25%) - $750 for property management (9%) - optional - $590 for property taxes - $360 for property owners association dues - $300 for repairs - likely unnecessary - $252 for home owners insurance Cash Flow = $170 GAIN in the first year Fast forward to 2009, and here's how the cash flow might look on a new two-story townhome in the City that can be purchased for roughly $150,000, and rented for approximately $900/month: + $10,350 of rental income ($900 x 11.5 months) - $8,172 for mortgage payments (80% LTV at 5.5%) - $932 for property management (9%) - optional - $885 for property taxes - $360 for property owners association dues - $300 for repairs - likely unnecessary - $378 for home owners insurance Cash Flow = $677 LOSS in the first year As you can see, an investor would now have to bring more than 20% as a down payment to even break even in this townhome scenario. There are plenty of investors who do bring more than 20%, or who pursue other properties with better cash flow characteristics, but hopefully this is indicative of how the investment property landscape has changed over the past seven years. But --- perhaps some of those investors are, or should be, looking at the Harrisonburg market yet again. You see, there are quite a few townhouse owners who bought back in 2000, 2001, 2002, or 2003 who bought when townhouse prices were very low. If they haven't refinanced, or taken out a home equity line of credit (HELOC), they likely have a loan payoff significantly below what the market will bear for their townhouse. Thus --- there are deals to be found with investment properties right now in Harrisonburg. They won't always jump out at you, as they may be listed at reasonable "market price" --- but if the owner is motivated to sell, and they bought 7-10 years ago, they likely have quite a bit of equity with which they can negotiate. If you are looking for an income generating property, feel free to call me (540-578-0102) or e-mail me (scott@HarrisonburgHousingToday.com) and I can assist you in determining whether we can meet your investment goals given the opportunities in today's market. | |
Either The First Time Buyer Tax Credit Is Working, Or The Harrisonburg and Rockingham County Real Estate Market Is Improving, Or Both!??! |
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For the past three years (2006, 2007, 2008) we have seen a decline in the number of home sales in the 3rd Quarter (July, August, September) as compared to the 2nd Quarter (April, May, June). These "seasonal" declines were 8%, 8% and 1% respectively. This year, we saw a 15% INCREASE in sales in the 3rd Quarter as compared to the 2nd Quarter. As stated, above, I have to conclude that either the First Time Buyer Tax Credit is working (creating more sales as we near the tax credit deadline), or our local real estate market is improving. Or, I suppose, both could be occuring --- either independently, or as cause and effect. If the tax credit is extended or expanded, I hypothesize that we'll continue to see an improving local market. If the tax credit is not extended nor expanded, we'll then perhaps be able to determine whether the 2009-Q3 home sale extravaganza was related to the tax credit, or an improving market. Stay tuned! | |
How Much Will I Pay In Capital Gains Taxes When I Sell My Investment Property? |
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First, here's how to calculate your gain or loss on the sale of your investment property.... Selling Price - Purchase Price - Purchase Costs - Improvements - Selling Costs + Depreciation You may have heard of short-term and long-term capital gains --- the difference is in the timing.... If you sell an investment property within one year (including one year exactly) of purchasing it, your "short-term capital gain" will be taxed at the same level at which your ordinary income is taxed. This could be at a rate as high as 35%, but depends on your income level. If you sell an investment property after one year of owning it, your "long-term capital gain" will be taxed at either 0% or 15%. If you (as an investor) are in the 10% or 15% income tax bracket, you will pay 0% (yes, that's right, no taxes) on your long-term capital gains. If your income tax bracket is above 15%, you will still only pay 15% tax on your long-term capital gain. This is important to note, as an investor might pay a 25% tax on their ordinary income, but can pay significantly less (only 15%) on their income (long-term capital gains) on investment properties in that year. Of note, these tax rates (0%, 15%) only last through the end of 2010 given current legislation on the books. If they aren't extended, they will revert back to the previous tax rates of 10% and 20%. | |
Top Rockingham County Property Owners |
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A few days agoI provided information on the top 10 property owners in the City of Harrisonburg based on quantity of parcels owned, and total acreage owned. Today, let's take a look at the same breakdown for Rockingham County . . . One significant note: This analysis does not account for the variety of property owners that own property in slightly different names or under entirely different entity names. | |
Top Harrisonburg Property Owners |
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Last week we explored who owns Harrisonburg, based on where those property owners currently live. Below are two additional slices of this data set --- exploring the top real estate owners in the City of Harrisonburg based on the number of parcels that they own, as well as the total acreage of the parcels that they own. The top two in each category probably won't surprise you . . . One significant note: I did some basic grouping for the City of Harrisonburg and JMU to combine the parcels owned by each in different variations of their names. This analysis does not, however, account for the variety of other property owners that own property in slightly different names or under entirely different entity names. | |
Is the Pace of Home Sales Finally Increasing In Harrisonburg and Rockingham County? |
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There are some who are predicting that the coming months will be QUITE slow in terms of home sales. After all, the first time buyer tax credit is ending, and we're entering into winter -- a season that always brings slower sales. But looking at the trajectory of sales between the most recent two quarters (2009-Q2, 2009-Q3), I'm left starting to wonder whether things might be picking up in pace.... As you can see in the graph above, there were a roughly equivalent number of Q2 and Q3 homes sales last year. This year, however, despite both data points lying below the 2008 figures --- we saw a 15% increase in sales between Q2 and Q3. With last year's astonishingly slow fourth quarter, I think there is a good chance our local real estate market will finish out the year strong with lots of home sales in October, November and December. Why are home sales picking up in pace? One plausible reason is that lots of first time buyers are getting in the market who might not have otherwise, or might not have last year. Check out the graph below, showing the change in pace of home sales under $175k. As you can see above, home sales in Q3 of this year surpassed (barely) last year's Q3 sales figure. It seems quite plausible that this trend will continue in Q4, and that it may be largely a result of the tax credit for first time buyers. Stay tuned as we move into and through October, November and December, but I don't believe real estate sales will be as slow as some predict. | |
What Are Your Home Buying Goals: A Place To Live, An Investment, Or Both? |
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Why do people buy homes? In a context stretching prior to 2002, people bought homes mostly because they needed a place to live --- and buying a home provided stability (your landlord won't kick you out), and had some financial side benefits (gradual appreciation, tax deductions). However, the paradigm of the American dream of home ownership shifted in the beginning of the 21st century when home values started to inflate by 10% - 50% per year in many markets. All of a sudden people weren't just buying houses because they needed somewhere to live --- but also because it would be an incredible investment. This new paradigm can be paralyzing to buyers in today's market. Certainly, people still need a place to live --- but now some buyers become hesitant and unable to act absent confidence that they will also have a strong financial return. I don't fault any buyer for desiring a good return on a home buying investment --- but I don't believe that keeping this new expectation on the forefront of our decision making is sustainable. Let me be more precise:
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"Priced To Sell" -- Just Crazy Marketing Talk? |
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Do you take special interest when you hear (or read) "Priced To Sell"? Should you? There are 20 homes on the market right now in Harrisonburg and Rockingham County described in the MLS as "Priced To Sell". Will they sell faster than the other 893 homes on the market that either aren't priced to sell, or at least aren't described that way? Let's see what history indicates.... In the past year 20 homes have sold that were described in the MLS as "Priced To Sell." They sold, on average, in 165 days. In the past year 756 homes homes sold that were not described as having been "Priced To Sell." They sold, on average, in 186 days. As it turns out, the "Priced To Sell" might have been a fair description --- these homes sold in about 10% less time than those that weren't described as "Priced To Sell." Actually, I was hoping we'd see a more convincing difference --- that perhaps homes that have been "priced to sell" would have sold in half the time of other homes. Aside: Maybe if we add "Priced To Sell" to the description of YOUR home it will shave 10% off the time it will take to sell it?? :) Inside Tip: You can search for "Priced To Sell" or other fun phrases in the MLS remarks of active listings via the "keywords" field on my Power Search. | |
Harrisonburg and Rockingham County Median and Average Sales Price Increase in September 2009, but . . . |
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Perhaps as a result of the $8,000 tax credit, this month's home sales were not as low as could be expected given the year-to-date trends. During the first nine months of this year, we have seen an overall decline of 21% in home sales, yet September 2009 versus September 2008 only shows a 11% decline. Furthermore, both the median sales price and average sales price increased when comparing September 2009 sales to September 2008 sales. The year-to-date median and average sales prices are still showing declines (4%, 2%), so we won't call this a trend yet -- but hopefully a sign of positive changes to come. To learn more, review the entire September 2009 Harrisonburg & Rockingham County Real Estate Market Report: Read Report Online | Download PDF. If you find the information in this report to be helpful....
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Who Owns Harrisonburg? |
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Of the almost 15,000 pieces of real property in Harrisonburg --- who owns them? Mostly people who live in Harrisonburg? Or not? Mostly people living in Virginia? Or not? Record your guesses, and read on.... Per the data I'm working with (Sept '09), I find the following to be true, as pictured in the graphic above:
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Why Are Home Values Remaining Stable In Harrisonburg and Rockingham County? |
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In most areas of Virginia and the United States, home values have fallen quite dramatically over the past two years. Why, in Harrisonburg and Rockingham County, haven't we seen a similar decline? This video explores the reasons why I believe we haven't seen a decline in home values, primarily because of stubborn sellers, the non-effect of foreclosures, and because home prices didn't increase as much here as they did in other areas. Click here to view the video. | |
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Scott Rogers
Funkhouser Real
Estate Group
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scott@funkhousergroup.com
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