Northwood News ♦ December 2009

Real Estate Changes in Our Neighborhood in 2009

By Gary Macdonald

It’s amazing how many opinions there are out there when it comes to the real estate market. Some of my friends are asking if I have been looking for a new job, while others seem to believe home prices are on the rise and they’re ready to start flipping homes as an investment.

And, if you listen to the radio or TV, you still hear gloom and doom when it comes to the market. So who do you believe? On what should we base our beliefs? Should we take the words of the pundits on TV and radio?

There is no doubt that one of the biggest factors of any real estate market is location. And, if you’re receiving this newsletter, consider yourself very lucky because we live in a phenomenal location: so close to D.C., the Beltway, shopping, parks, etc., and the fact that our schools are excellent make Northwood/Four Corners/Forest Knolls always in demand. Not everyone who has a Silver Spring address is this fortunate, so pat yourselves on the back for picking a solid community.

I want to share some statistics which may clear up a few things about the real estate market in 2009, but first I need to give you just a quick update as to how we got to where we are.

2001 to 2005: Home prices averaged a 20% increase in value across the board.
2006: Home prices peak.
2007: Foreclosures and short sales started to become very popular. The mortgage industry goes through an extreme makeover. Homes dropped about 10% in value
2008: Slowest year for real estate in many, many years. Homes dropped an average of 20% in value.

Definitions

Short Sale: A home on the market that is worth less than what is owed and the seller cannot come to the settlement table with enough money to pay off their loan and pay their settlement costs.
Foreclosure: A sale that takes place, usually, at the courthouse steps. The owners could not make their payments and the lender has evicted them (or they left voluntarily) and is trying to sell the home at a public auction, called a foreclosure sale.
Bank-Owned Home: A home that went to auction as a foreclosure sale that did not sell and the bank bought it back. These homes are usually put on the market with a Realtor working for the bank. These are also called REO properties (Real-Estate Owned).

All of the three types of sales above are also called “Distressed Sales” and are almost always purchased for below market value.

So, in late 2009, what’s going on in Northwood/Forest Knolls now?

As we compare the first 11 months of this year to the first 11 months of last year, some statistics and figures really jump out. But first I believe it is important to compare apple to apples. You cannot talk average sales price from one year to the other if you’re using distressed sales and “normal” sales together. The main reason for this is that, in 2009, we have had a large increase in distressed sales from 2008. Here’s a chart to help make sense of it.

2008 vs. 2009 Home Sales 1/1–11/14 in Northwood/Forest Knolls

Distressed Sales
	2008	2009	Difference
Number of Sales	3	13	+433%
Average Price	$345K	$275K	-21%
Normal Sales
	2008	2009	Difference
Number of Sales	26	23	-12%
Average Price	$371K	$358K	-4%

As you can see, the total number of sales in 2009 (both distressed and normal) have increased, so there is more activity, which is a good thing. Unfortunately, though, the number of distressed sales have increased tremendously and those values are considerably low in comparison.

Now for some silver lining: from last year to this year, the average sales price has only dropped about 4% on normal sales. One statistic not shown is the fact that the average days on the market for a normal sale in our community is at only 58 days. These numbers are very encouraging to see.

Let’s take a quick look at the bigger picture and use Montgomery County as a whole. Last October (2008) there were approximately 6,000 active listings in the county — this included single family, town homes, condos, etc. — and 729 of those homes went to settlement. This means, at that time, we were holding an 8+ month inventory of active listings (6,000 listings divided by 729 settlements = 8.23). This October (2009), there were approximately 3,200 active listings and 950 settlements. This equates to a 3.3 month inventory: less listings, more sales. Economics 101; it’s all about supply and demand. The National Association of Realtors says that, when the inventory is 4 months and below, it’s a sellers’ market, 4–6 months is a normal market, and over 6 months is a buyers’ market. In other words, last year was a buyers’ market and now we are actually in a sellers’ market.

Remember during the boom of 2001–2006 when it seemed like every home was sold with a Price Escalation Clause (where the buyers offer $325K but add the escalation clause stating they’ll pay $2,000 more than any offer up to $350K), no home inspection or financing contingencies, etc.? In 2007 and 2008, I was not involved in any home sale which featured an Escalation Clause. In 2009, I have been involved with about a dozen of them. My buyers have competed against other offers and many of my listings have received multiple offers with escalations. That being said, we are not anywhere near the frenzy we were in then. However, there is no doubt in my mind that, if a home is priced correctly and shows correctly, it should sell quickly, most likely in a couple of weeks or so unless it has some major issues with location, functionality, etc.

To sum things up, I believe we are in truly a unique situation in real estate today. For the first time in my 11+ years of real estate, I’m seeing the market as being both a sellers’ and buyers’ market. The reason I say this is because usually, when it’s one way or the other, it totally benefits that one side. Right now, with interest rates at 5% or lower, the $8,000 First Time Homebuyer Tax Credit (extended now through June 2010), a $6,500 credit for non-first timers (some restrictions), the fact that values have dropped to a more affordable level, and a perceived increase in consumer confidence makes this just as good a market to buy as it is to sell. Call it the Perfect Storm if you will. It just seems that everything, for the time being, is all blending very well together. Let’s hope it stays that way, at least for a while.

[Gary Macdonald, who lives on Kerwin Road, has lived in the neighborhood since 1996.] ■