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Buy now
Market flooded with foreclosures, low-interest rates combine to create affordability
Though the real estate market probably hasn't quite hit bottom yet, now is a great time to buy \ if you are qualified.
That's the opinion of Alvin Henry, a real estate appraiser with more than 20 years experience in Fauquier, Rappahannock, Culpeper, and surrounding counties.
In his time on the job, Henry has evaluated loads of properties and seen the market rise and fall.
}Every cycle is different, he said recently from his office on Waterloo Street. In this cycle, local builders haven't been hurt. They had low inventories and not a lot of spec houses. It was the homeowners \ the people who went out and bought \ who were hurt this time.
}I've never seen this mass of foreclosures, this large quantity of bank-owned properties that we're seeing now. This is far reaching. It's across the board. This is big.In previous housing market downturns, Henry witnessed price drops of 10 to 20 percent. Now we're seeing 20 to 40 percent [reductions] from the peak of the market, he said.
From Henry's perspective, the market peaked in late 2003, through 2004 and remained high through most of 2005.
}This time, the market changed on Sept. 1, 2005. That's when Katrina hit and it was the first time that gas went to $3 a gallon, Henry recalled. The market stopped. It lost air. It faltered then, and early in 2006 it started going down, and it's been progressing downward.Land values have also dropped, he said, though they held value longer and didn't start to come down until last year. Although it was delayed, the value reduction has been significant, he said, noting that 10-acre lots that sold for $350,000 are now moving for $250,000 to $275,000 and five-acre lots that peaked at $275,000 have dropped to $175,000.
The fall was as dramatic as the rise, Henry said, pointing out that as recently as 1998, five-acre lots near Orlean could be purchased for $50,000.
As the market has dropped, so has Henry's business. At the height of the market, Henry, along with a second appraiser in his office, was doing about 20 appraisals a week. Now he's down to eight to 12. I'm about 40 percent of where I was, he said, noting that fewer homeowners are refinancing, as well, having already tapped into their home's equity or seen it eroded by devaluation.
The decline in the market, Henry said, was inevitable.
}It had gone up too far, too fast. Anytime you see something that has a run up like real estate has had in the last few years, there has to be a correction, he said.The worst hit areas in Fauquier County were subdivisions built by national homebuilders, Henry said.
I think what happened was that there were no checks and balances, he said. Somebody went in with an in-house mortgage lender, an in-house appraiser, and an in-house title company.
Henry points to a townhouse development off Academy Hill Road as an example, noting that these attached units sold for as high as $450,000 at the peak of the market. This spring, he said, they are priced in the $250,000 range.
And, while these price reductions are dramatic, the market has not reached the bottom, he said.
}The next two or three months will be pretty critical, Henry said, predicting that banks will start to liquidate their real estate holdings with large-scale auctions this summer. That will clear out some of this inventory, but it will probably drive prices lower. The absolute bottom is going to be when people can buy a house and rent it out and cover that mortgage. That's the floor.As the market drops, the silver lining in the housing market becomes apparent.
With loads of inventory, little competition from other buyers, and terrific interest rates hovering around six percent, now is a great time to buy, he said.
Acknowledging that Fauquier County has long struggled with affordable housing, Henry said the decline in values may offer opportunities to young couples and families.
}You can go into Fauquier County, particularly in Bealeton, and buy a two-story colonial with three or four bedrooms, two and a half baths, and a garage for under $300,000, Henry said, noting that a mortgage of that size would typically carry a payment of $1,500 a month. For a family of two teachers or a policeman and a nurse or something like that, there's a lot of affordability now, definitely, in the Fauquier market.Noting that he's seen detached homes for under $200,000 and townhomes for as low as $165,000, Henry said that it is absolutely a buyer's market \ provided you can qualify. Good credit history is more important now than it's been in recent years, he said.
}Lenders are more cautious. I'm seeing underwriting standards go back to where they were 15 or 20 years ago, Henry said, noting that there is no funding for subprime loans. That market is gone and [the real estate market in general] is not going to come back as it was. The pool of buyers has been reduced for the future. Lenders are going to be more responsible. Two plus two is going to have to be four, it can't be six.Henry said that he believes one of the lessons to be learned from the current foreclosure crises is that buyers should work with local lenders.
}People get solicited by mail and the Internet, but in all honesty, the best thing they can do is meet with a local lender and work with somebody they can see face to face and have access to and not end up dealing with somebody in Texas or California.Not only are lenders looking more closely at the financials of prospective buyers, they are also looking more carefully at residential property comparables provided by appraisers to support specific prices. Historically, Henry said, he is asked by lenders to provide three comparables. Recently, he has been asked for four, five or even six comps.
Additionally, because Fauquier County has been declared a declining market by Fannie Mae, lenders are requiring that two of the comps have been sold within 90 days of the appraisal. With so few sales, Henry said that providing that information is challenging.
}It's not unusual that at least one of the properties [used as a comparable], and sometimes two, are bank-owned properties, Henry said.E-mail the reporter: lruby@timespapers.com .
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