Real Estate Live

Kirstin Downey
Washington Post Staff Writer
Friday, February 17, 2006; 1:00 PM

Welcome to Real Estate Live, an online discussion of the Washington area housing market. Post staff writer Kirstin Downey fills in for Post Real Estate editor Maryann Haggerty.

Kirstin Downey has been a business reporter for more than 20 years, covering a wide range of subjects, from retailing to workplace issues to the economy.

She joined The Washington Post in 1988, covering real estate, and has witnessed, firsthand, several market cycles. She's also covered the boom in values in the '80s, when things went up, up, up, and tracked the market down, down, down when it fell in the early '90s, culminating in the banking, savings and loan collapse and the subsequent taxpayer bailout of the nation's financial system. Now things are up once again, with home values at record levels, but people are wondering what the future holds.

The transcript follows.

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Kirstin Downey: Hello, everybody. Happy Friday to you all. I'm feeling very cheerful looking into a three-day weekend, and am pleased to take your questions today. But please remember that this is also an opportunity for you to tell me what YOU see happening in the real estate market, so I'm also interested today in hearing people's observations, even if they don't have specific questions. The market is changing, just the like the seasons now, and we are trying to monitor it. Your comments will help us be better informed as we report the news.

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Centreville, Va.: I've been reading blogs, economic reports, etc., saying that inventory is up more than 50 percent in Fairfax County and that this will effect housing prices in a negative manner. Do you see the same shift in prices in the upcoming year?

Jay, Centreville, Va.

Kirstin Downey: Hello, Jay. Yes, it's true that housing inventory is much higher than it was last year or the year before. But it's important to remember that in the last few years, there were so few houses for sale that it caused all kinds of problems -- bidding wars, and people passing up home inspections to "win" the competition to buy. Generally speaking, more inventory does tend to lower prices, but the market is healthier in many ways than it has been in the past few years, for both buyers, and in some ways, for sellers, too.

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North Bethesda, Md.: Here's a comment on the downturning market: My wife and I closed on our first condo, a two-bedroom, one-bath in a newly renovated high-rise. Since closing in December '05, the seller has dropped similar units on higher floors by $15,000. So an identical seventh-floor unit just closed this month for the same price as our fourth-floor unit.

And a question: How much a difference does floor level make in re-sale and has this decreased our condo value by $15,000 (in just two months)? We're scared we just took a bath at the peak of the market, and it might get worse.

Kirstin Downey: There's no question that prices appear to have flattened, and in some cases, fallen slightly. Your experience is unfortunately not unusual in today's market. But you are already committed now, and it's probably not a good idea to drive yourself crazy worrying about something you can't change. It's like brooding too much over the stock market...

As to the floor question, it would depend on the view. A better view is worth more money. But some people like to be on lower levels of multi-rise buildings, not higher levels. Fire safety experts, for example, would say you may one day be happier on a lower level if you need to make a speedy exit! When I interviewed experts about building safety after the World Trade Center disaster, some of them told me they won't take a hotel room higher than the seventh floor.

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Alexandria, Va.: With all of the new mortgages taken by homebuyers who otherwise couldn't afford the house they are buying, is a day of reckoning on the horizon? If so, will that have a profound effect on prices in the area?

Kirstin Downey: There's no question a large number of buyers used what have been called "exotic" loans -- interest-only mortgages or adjustable-rate ones that may rise markedly -- to purchase properties they otherwise couldn't afford. A recent study said that up to 1.4 million of these loans made in 2004 and 2005 may go into default or foreclosure, but the real estate consulting firm that did the analysis said it would have a minimal effect on the overall market because so many more people have fixed-rate loans or own their homes outright...Obviously, however, the effect on the individual homeowner is catastrophic...We may see more of a problem in this area than other parts of the country because more of these kinds of loans were made in the Washington area than many other parts of the country. But people here also have good incomes, many have stable incomes, and many will refinance into fixed-rate loans that will reduce their risk. The bottom line, however, is these kinds of loans are new and nobody really knows how it could play out.

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Washington, D.C. : Hi Kirstin. We just sold our D.C. townhouse. It was on the market for less than 30 days. Out of the gate I felt that we priced it reasonably and had taken a lot of time to empty it of clutter and stage it well. I feel that really helped bring people in and yield us multiple offers. In our neighborhood, the houses that have been languishing on the market are way overpriced and not cleaned up inside or staged at all. Also, we worked with an agent who has over 20 years of experience in this region and I think that helped us stay realistic. She has been here through many changes in the market and her experience was invaluable to us. We are very pleased with the outcome.

Kirstin Downey: Congratulations. I'm glad to hear your story... As I look over real estate listings in the Washington area, I see that many are reducing their prices, which suggests to me they were overpriced at the start. The houses that are realistically priced seem to be selling much more quickly.

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Arlington, Va.: Speaking of inventory, I've read/heard a lot about the condo glut. In my current search for a condo of my own, I've seen new developments offer lower prices and better incentives and older units stay on the market for weeks/months. I visited on new condo project this week and they told me they'd dropped prices by $30,000 because they hadn't met their pre-sale quotas. I'm wondering if this is really the best time to purchase condos, or if it might be better to wait a few months to see how this glut really plays out. Any thoughts? Thanks!

Kirstin Downey: More supply tends to drive down prices. A recent study by Delta Associates found that about 50,000 new condo units will come onto the market within the next three years, while only about 10,000 a year were sold in recent years. So you do the math. You are in a great position to really study the market, visit all the properties, and make an informed decision. Really great places at good prices will always sell quickly, and you don't want to miss out on something fabulous, but you may want to make your purchase very carefully.

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Fairfax, Va.: I just wanted to offer you an observation about the Centex's $100,000 off 12 hours event that I went to.

I went to a Centex office in Fairfax, late in the evening. They were offering $50,000 off of their condos. Even with the heavy discount, it seems like they'd only sold four that night. They were marking the sold homesites on a big board in their office.

By the way, about a week ago, Centex offered up to $150,000 off in parts of California.

Kirstin Downey: Yeow. That's worth noting... By the way, if you or others are currently in the market now, either buying or selling, we are interested in discussing with you your experiences in the market. Please email me at downeyk@washpost.com.

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Washington, D.C.; : Since when was Gaithersburg renamed to No. Bethesda??? And Rockville No. Potomac??? These peoples make me laugh.

Kirstin Downey: Ever since home prices went through the roof, and people had to pay Potomac-level prices for Rockville! It's pretty funny! There's certainly a lot of spin applied to real estate!

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Alexandria, Va.: Kirstin: I've been doing most of my house-hunting on the Internet, coupled with driving by the houses I'm interested in to check out the yard and neighborhood. I'm able to eliminate about 95 percent of the houses this way and only need a realtor to show me the few houses I'm still interested in. If I were to find a house via an "Open House" or by having the listing agent show me a house, would I still need a realtor for the transaction? Could I just enlist a real estate lawyer when I want to make a bid and skip the realtor altogether? With the Internet, it seems like the role of a realtor is greatly reduced -- as should be their commission.

Kirstin Downey: The issue for you as a buyer isn't just whether you want a real estate agent, but whether the seller wants one. In this market, many sellers will be using an agent, and then the commission is loaded into the purchase price. You can avoid using a real estate agent if you find a person selling without an agent....And the commission issue, as you might be aware, is fairly controversial now because government antitrust regulators have raised questions about how the 6 percent structure is remaining in effect, and the ways some regional real estate trade groups have tried to keep discount and Internet-based competitors out of the business. The Department of Justice has sued the National Association of Realtors alleging that its system of computerized real estate listings has been anti-competitive. It's a story we've been following, and will continue to follow.

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Bowie, Md.: My house has been on the market for one month with hardly any traffic at all. I believe that we have it priced right and it is in show condition. Any other reason why not a lot of traffic? Is it the time of year?

Kirstin Downey: Last week's blizzard would certainly have had an effect on how many people were out looking for homes. The Spring market usually starts around now, and we're not yet sure how it will go. We're watching, too. Thanks for sharing your experience. You must be biting your nails.

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Chevy Chase, D.C.: Hi Kristin,

Happy Friday to you and everyone else! My question is about "exotic loans". I bought a small studio in Chevy Chase, D.C., last September for $190,000 and took out a 80/20 loan -- the larger is fixed for five years, the second can be fixed after the first six months. I can afford my mortgage, and would have been paying $12,000 in rent this year if I hadn't bought my studio that I LOVE!!

What's so wrong with my decision?? I'm sick of reading that I'm going to be in trouble soon -- I knew the risks, but bought in a highly desirable area of D.C. with loads of amenities. I assume location is still key regardless of real estate market, correct? Thanks for any insight you can give me.

Kirstin Downey: Chevy Chase is a really fun neighborhood, and it's good to hear the condo is working out for you. I guess the fears people are raising is what will happen to people if their adjustable-rate loans reset, making them unaffordably costly. Just make sure you have done all the calculations -- talk to your lender about all the possibilities -- and if you feel sure you could live comfortably when the rate resets, you'll be fine.

But if you worry about your mortgage jumping up in the future, you might consider refinancing to a fixed-rate loan for the entire amount. It all depends on your finances. Many people can dodge a possible bullet now, with interest rates still so low, by reducing the risk factor by refinancing to something more stable. There's a reason older people like fixed-rate loans -- they have seen what happens when interest rates shoot up, like they did in the 1970s!

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Alexandria, Va.: With real estate prices soaring and moving up so quickly over the last few years why isn't more made of paying realtors a set percentage of the price? What are realtors doing today that justify such a huge increase over what they were doing just four or five years ago?

Todd

Kirstin Downey: That's the question the antitrust regulators at the Department of Justice and Federal Trade Commission have been asking. But real estate agents say the market goes up and down, and though they have had some good years, bad ones may follow.

If you just read through today's postings, you will realize that there are some real estate agents who are waiting for a payday that may not come for a while. Some have done weeks of work only to see properties withdrawn from the market altogether. In other words, no pay at all.

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Fairfax, Va.: Please tell the Alexandria questioner about the dangers of "disincentivizing" real estate brokers on the commission side. Unfortunately your property can disappear from the face of the earth.

Kirstin Downey: Good point. Real estate agents need to make a living, too, and are -- obviously -- going to be more inclined to show clients properties that offer a commission than those that do not.

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Bubble Burst!: Is that a hissing sound we hear? The sound of air rapidly escaping from a bubble?

Boy, is this going to be fun to watch!

Kirstin Downey: The amount of fun depends on whether you are a buyer or a seller. A woman I work with who is a renter watches each new report of the market's slide with pure delight. She deserves some glee, after spending a couple years sitting next to a young man who owns a home who preened and patted himself on the back for his good judgment at each report of home price increases.

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Vienna, Va.: We were in tested in a new Pulte townhome next to Huntington Metro. It was originally priced at the low $700s. We got an email invitation recently to buy for $620K with Pulte paying all closing cost and one would get all upgrades. It's still overpriced, in my opinion. But the change of price is remarkable. I'm just glad to see that prices are changing because it's just wrong to have two incomes but can't afford a decent sized house.

Kirstin Downey: There's no question that prices had gotten out of whack. It has reached the point that people are making life decisions based on real estate, not on what really makes sense for their lives. That can be a very dangerous thing to do.

Last Spring I talked to young couples who couldn't decide to marry but who bought houses together so they wouldn't miss the real estate boom. So what might happen if the house price falls and the relationship deteriorates? These high prices, and a subsequent decline in the market, can have some painful effects on the human beings who live in the houses.

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Falls Church, Va.: A simple and, I suspect, often asked question.

I've used both homesdatabase.com and more recently propertyminder.com (accessed through some realtor's site). both have their pluses and minuses. Do you (or any of the other clicksters) have preferences for real estate search engines? Has the Post ever written an article on the topic?

Ideally it would email listings, without to many entanglements and offer a variety of search granularity (down to the block would be so cool).

Thanks,

Jimmy

washingtonpost.com: For reference, washingtonpost.com's search tool has recently been reworked and redesigned -- you can check it out here .

Kirstin Downey: I like ZipRealty, too.

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Washington, D.C.: If I am going to repaint the interior of my house before I sell it, would you recommend all white or colors? Thanks.

Kirstin Downey: Real estate agents usually recommend beige. But I see people using color on the walls in some great ways, and if you have a flair for design, you might be able to make your unit more eye-catching than all the other beige-land places they will otherwise be seeing. But that's just my opinion. I like color!