It has been a unique year in real estate throughout Reston, and surrounding areas.
The malaise of 2007 through 2010, a condition which was felt less here than other areas, has given way to rising prices and listings which sell within days.
As one of the few who predicted a bounce-back rally in prices and demand this year, people often ask me "why," and what the future holds. I wish I had that crystal ball.
However, the forces I have seen in place are still in place, and this bodes well for increased prices in virtually all of Reston. The flip side to this good news is the possibility of a chronic affordability issue, and the degree to which Reston is transformed from a diverse community with open spaces and various life styles, to a magnet for a more affluent crowd without the sense of the overall Reston history. I leave the flip side issues to other people for now. Here are the dynamics which are driving, and will keep driving, Reston prices.
- The Silver Line subway. I state this first, because it is the most often mentioned. I will also provide a minority opinion on this: it is probably the least influential reason for the price increases, and may have a slight boomerang effect. We have all heard the great news about the subway making commuting easier, and attracting more potential residents. But the market would be doing what it is doing, with or without this added influence. A caveat going forward: it does not take a long memory to remember the rush to develop condos in the Reston Town Center, well before the economics warranted such a rush to build. Prices collapsed, and many condo owners remain "under water" as a result. This subway mania is likely to bring many developers out of the woodwork, with all sorts of plans to build around the subway stations. Historically, developers' economic analysis and blue prints serve as more of a rationale to promote their building plans, not a necessarily sound economic/financial plan designed to thrive when the economy varies from their projections. I will leave it at this: we must guard against overbuilding; we must guard against building which asthetically reduces the value of homes and businesses around it. Apologies to my real estate and developer friends, many of whom have a "build it and they will come" philosophy.
- The incredibly strong economy in Reston. This is reason number one for increased pricing and future growth. Whatever is number two is a distant number two. Reston is now the economic hub for not only Northern Virginia, but in many ways, for all of Virginia. This will continue. The success of the Reston Town Center, and immediately surrounding areas, as a destination location for business and entertainment, will continue to drive growth.
- Interest rates collapsing and rents rising. Since 2007, we have seen a glut of rental houses available, as under water condo owners choose to rent out their units rather than sell into a declining market. In many cases, the amount of rent received has been far less than monthly mortgage payments. Now, with interest rates at or near historic lows, buyers have been surfacing to soak up much of the rental overhang. We are now developing a reverse situation, with monthly mortgage payments reasonably close to monthly rents. This is fueling buying from those who had been renters, and buying from a growing investor class. Rents have been strongly moving up, and prices are out of the doldrums in most areas and surging back higher.
- A mistrust of the financial markets is increasing the number of people with available investment capital to invest in real estate. Why not invest in the best location and town?
- The supply of housing for sale has been very low, and remains very low. Many people love Reston, and just want to remain here. Others who have seen recent price declines simply won't "sell at a loss", so they hold on or rent their homes. Regardless of reasons, there has been an acute shortage of people putting their homes on the market for sale. Coupled with increased buyer demand, prices are surging higher again.
- The vise-grip tightening in mortgage lending standards, and the "appraisal issue" are loosening up. The lending standards in the 2004-2007 era were insanely loose. We all know that. But lending standards are becoming a bit more amenable in 2012 versus 2011, and moreso versus 2010. This trend will likely continue. The issue of appraisers fearing the accusation of "over-appraising" and the nature of appraisals to necessarily "look backwards" when doing comparable sales is far from over. However, there is a growing awareness of recent price trends and appraisal issues are loosening up as well.
For the individual seller, what is the upshot of these conditions:
- Many home owners have been underpricing their homes. After many years of suggestions to "be reasonable about pricing", what is now reasonable are price levels above recent sales. When a home sells in one day, with several others calling a day later to suggest they had interest, the chances are that you were pricing too low.
- Do not fear "days on the market" at the time of listing. The recent trend toward higher pricing and more demand should be encouraging. If you are not under the gun to sell immediately, price to current conditions, not yesterday's sale. You can always drop the listing price; it is not feasible to increase it later.
For the buyer:
- We all love to negotiate. Most sellers do have some "slack" in the listing price. But don't overplay your hand. I hear this often from people with "cash offers" or large down payments; yes, you can move the asking price down, but no, the days of draconian price reductions to satisfy a cash buyer are over.
- Focus on the home you want in the neighborhood you want. I see too much dickering on small percentage differences in prices, only to have another offer come in to trump the buyer's intitial offer. If you love a home, and love the neighborhood, BUY IT. Better to pay "a little too much" (if indeed you really are) to have the place you really want for many years, than to continually chase after "a deal" in a rising market.
- Before you begin the buying process, get a firm,legitimate pre-approval from a strong, recognizable lender. The best situations may be ones in which you need to react quickly. You cannot react quickly without a lender approval letter. You know this is a requirement, so just get it done beforehand.
I am always available for consultation free of charge. Please feel free to call, text, email, or tweet at any time.
Ray Wedell, CFA