FALL 2009

INSIDE THIS ISSUE

Lender’s View page 1
Remember TARP? page 2
Strategies page 3
CENTURY 21 NEW MILLENNIUM | THE PATH HOME
Summary page 4

DEAR NEIGHBOR,
“Real Estate is Great at CENTURY 21 New Millennium!” Compared to here, decline in Florida values have been
We greet every caller with this message. Each email we considerably more abrupt and only now are beginning
send concludes the same way. We now wear buttons to show any sign of recovery. How bad? In many Flor-
which invite all to “Ask us Why” Real Estate is Great. ida markets, lenders are just not willing to lend on con-
Why, you ask? In our market, when measured against dominiums; period. While lending standards have tight-
the last four years, and viewed relative to the rest of the ened considerably across the country, for us, financing
country, Real Estate is indeed Great! is available on all property types. The absence of fi-
Amy DeBok
nancing severely limits the buyer pool but creates a
Realtor® Recessionary periods typically have a more moderate, significant opportunity for those with cash.
less sustained impact on the Washington DC Metropoli-
6641-A Old Dominion Drive tan Area than the country as a whole. Make no mis- Those qualified to purchase continue to have an incredi-
McLean, VA 22101 take; it’s been very tough, but consider Detroit, where ble opportunity. Locally, our market has become much
foreclosed homes are being sold in lots of one hundred more competitive for buyers. Within lower price ranges,
for about fifteen hundred dollars per. Of course in multiple offers are common and sellers should be en-
Office: 703-556-4222 Michigan, unemployment has topped seventeen percent couraged by a trending increase in values. While in
[email protected] and continues to climb. Unemployment in the Washing- many areas, the majority of sales continue to be fore-
ton DC Metropolitan area is relatively stable at around closed or short sale properties, “like” properties are
http://amy.debok.c21nm.com
six percent. selling at considerably higher prices than they brought
at the beginning of this year.
703.618.2601
GOVERNMENT INTERVENTION AND THE LENDER’S DILEMMA
Most would agree that this recession began when value adjustment of over fifty percent, it is clear how deemed to have failed. Ordinarily, the government
the housing bubble burst. Certainly, this is why banks exposed those holding the second mortgage are. steps in, takes over the failed bank and completes an
became stressed. The steep decline in property orderly liquidation. Because real estate values fell so
value is further complicated by preceding years of Federal regulations require banks to maintain spe- far, so fast, this time the potential for failure was
relatively lax lending standards with high loan to cific capital ratios. Capital ratios simply measure the systemic and even the largest institutions were at
value ratios. When leveraged, even a modest decline relationship between a banks assets and liabilities. risk. Government intervention via TARP legislation
in a home’s value will erase an owner’s equity posi- “Mark to market” accounting regulations required bought banks time but did not touch the “toxic as-
tion. This leaves the lender increasingly exposed institutions to value their loans (assets) at their cur- sets.”
when the homeowner is unable, or unwilling to pay. rent market value. This valuation is likely considera-
bly less than face value of the asset when acquired. A myriad of government programs are now in place;
Few anticipated the potential for such significant each intended to encourage real estate acquisition
revaluing of real estate. The most common method Why? In the case of a bank holding a twenty percent and minimize inventories. Banks will not become
for applying leverage to a purchase was the second mortgage on a home that is now worth less fundamentally healthy until the value of their collat-
“Piggyback” loan. The purchaser would obtain a than eighty percent of the purchase price, the value eral, residential property, improves. The “toxic as-
conventional first mortgage for eighty percent of the of this non-performing asset would be zero. In harder sets” remain toxic and on the books of the banks.
home’s value. They would simultaneously hit markets, the value of the eighty percent first mort-
“piggyback” a second mortgage for an additional gage has diminished considerably as well.
twenty percent, or the balance of the purchase price.
Considering that many markets have experienced a Banks unable to maintain required capital ratios are 1
MARKET TRENDS | UNDERSTANDING THE BIGGER PICTURE

REMEMBER TARP...IS IT WORKING?

TARP , the “Toxic Asset Relief Program” was an early, bold and large scale government intervention to avert the systemic failure of banks. It’s intent was to
purchase “toxic assets”, (under collateralized and non-performing mortgage loans), and get them off the books of banks. Instead, TARP morphed in to a
program using taxpayer dollars to restore bank’s capital ratios by acquiring equity stakes in undercapitalized banks. Subsequently, “Mark to market” regula-
tions were relaxed, effectively lowering the standard a bank must meet to be considered compliant.

While effective in stabilizing participating banks, TARP left the toxic assets on the balance sheets of at risk banks. This treated the symptom, not the dis-
ease. Banks holding nonperforming loans are no longer required to price these assets at “fair market value”, unless an event occurs which diminishes the
face value of the loan. Foreclosure and short sale transactions are two such events, thus requiring banks to record the actual loss. Loan modification keeps
the borrower in the home and in most cases, will allow the bank to keep the asset on their books at face value.

Legislators expect TARP banks to place priority upon modifying loans rather than foreclosing. This expectation will have a limiting effect on inventory levels,
support value restoration and improve the position of at risk homeowners and banks. Every dollar of home price appreciation is one less dollar of “toxic as-
set.”

DEFINING YOUR STRATEGY

Real property is a commodity. Values are deter- property is only realized when sold. We are well Sustainable economic recovery requires that real
mined by the pool of ready, willing and able buy- off the bottom in most regional markets and estate values improve across the country. The
ers; not sellers, not REALTORS®. The greater trending is positive. fundamental cause of this recession is the decline
the number of homes on the market, the more in real property value. Government will continue
pressure buyers will impose upon prices. We recently represented a seller that had little to pressure lenders to modify loans rather than
interest in trying to keep their home. When we foreclose. Inventories will continue to shrink.
Real estate remains a local business. The eco- listed the property as a short sale in April, com- Buyer side confidence has returned and demand
nomic challenges we face are global. Govern- parable sales suggested a value in the $130,000 continues to swell.
ment programs intended to stimulate recovery are range; the seller owed $195,000. We obtained
not surgical. They apply the same prescription to and presented an offer to the bank for $135,000. We will benefit exponentially from Government
our market as they do Detroit and Florida. Obvi- Initiatives necessary to restore values in Detroit
ously, we are much more prone to recovery. To the banks credit, they offered the seller a loan and Florida. If considering a purchase; do it now.
modification, fixing their payment at 31% of the If considering a sale, select your representation
Consider the freefall we saw in the stock market; seller’s income for the term of the loan; the seller carefully and evaluate every alternative before
Index values declined over fifty percent from their declined. In July, the bank declined the short acting. Values will improve and staying the
high, but have now rebounded over fifty percent sale because the most recent sale of the same course may be the best answer. I know; a REAL-
from the lows. Unless sold, the value of these townhome was $195,000 . This seller has now TOR® doesn’t often say that.
assets are today’s market value. been foreclosed upon and the property is under
contract with a list price of $205,000. The seller
The same principle applies to our homes. Any made a mistake.
depreciation or appreciation in the value of a

SALES VELOCITY VALUE TREND

Obviously we have turned the corner in terms of the number of homes for Declines in inventory and increased buyer activity are having a positive
sale as well as the number of homes being sold each month. The trend impact on values. This is good news for sellers, banks and taxpayers.
will continue to create a more competitive market for buyers, further dimin- Even modest gains bring some sellers back to a positive equity position
ish inventory and impose upward pressure on prices . and reduce the toxicity of non-performing loans for banks.

2
 This Orlando Condominium sold on July 6th, 2005 for
$206,200. Following foreclosure, it was listed this summer
for $38,900. It is now rents at $950 per month on an annual
lease.
MetroWest, an upscale Orlando golf community is located
within twenty minutes drive time from the entrances to
Walt Disney World, Universal Studios and Sea World. Lo-
cation, location and location are the three most important
aspects of real estate!

THE BUYER’S OPPORTUNITY | IT’S ALL ABOUT TIMING

MANAGING YOUR PORTFOLIO

Earlier this year, we detailed in our newsletter a property in Manassas Lenders in many parts of Florida are not making loans secured by con-
Virginia that sold in January for $120,000. The acquiring investor then dominium properties. This lending standard limits the pool of qualified
rented the home for $1,500 per month. Three years ago that property buyers, minimizes demand, and therefore significantly diminishes their
sold for $430,000. Today, the market values that property at nearly value. When buyers are able to again secure financing, demand will
$200,000. Many of our clients successfully added to their portfolios with surge and these assets should outperform the overall market.
similar purchases.
Many of our clients view this market cycle as an opportunity to secure
Obviously, the Washington DC Metropolitan area is well on it’s way to retirement, investment or second homes at distressed pricing. The
recovery. There do, however, continue to be significant opportunities in potential for capital gain is significant as are cash flow potentials when
distressed markets across the country. Florida, and other east coast acquiring at these values. It’s very likely much more fun than owning
resort areas, are popular retirement destinations and vacation prefer- IBM!
ences for those that reside in the Mid-Atlantic region.

ACQUIRING PROPERTY WITHIN YOUR RETIREMENT ACCOUNT

There are stringent regulations that apply to owning real property within ium dues are $550. Your plan then rents the unit for $950.
your self directed qualified plan. Obviously, we recommend that you
consult your legal and tax professionals if considering this strategy. The Since all expenses and income stay within the plan, your plan now
concept, however, is fairly straight forward. earns $400 per month of $4,800 per year; tax deferred. When you sell
the property, the capital gain stays within the plan; tax deferred. If held
Just as you choose which stocks and bonds you hold within your plan, within a Roth IRA, the income and capital gain are tax free. The annual
you direct your plan custodian to acquire the property you select. The return exceeds 10% without regard for a potential capital gain when
acquisition cost and all expenses must come from funds within the plan. selling at a later date.
If you choose to rent the property, all income must come back in to the
plan. Owning real property within your qualified plan adds diversity to your
portfolio. Real property has little potential to become worthless and
Using the condominium above as an example, let’s assume your plan today’s prices are attractive. While somewhat unconventional, the strat-
purchased the unit for list price,$38,900, plus closing costs, paying egy itself is compelling. Please call me if you wish to explore this oppor-
cash. The plan’s monthly expenses for taxes, insurance and condomin- tunity further.
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CENTURY 21 NEW MILLENNIUM | REAL ESTATE NEWS

SUMMARY
If you are considering a real estate transaction, thorough analysis and competent representation are
essential. We are in a transitioning market. There is potential for profit, as is there risk of loss. If we
understand the underlying facts, we can continue to make good business decisions; logically and
without emotion. I am a real estate professional and accept responsibility for keeping my friends,
neighbors and business community informed as to all aspects of things affecting the real estate por-
tion of their holdings.

If you are currently listed for sale, this is not a solicitation. If you have a real estate question, I will be Amy DeBok
happy to answer it, or find the answer. If you have a real estate need, I will appreciate an opportu-
Realtor®
nity to compete for your business. Our team is very good at what we do...our results demonstrate
that. Don’t settle for less.
6641-A Old Dominion Drive
Sincerely,
McLean, VA 22101
Office: 703-556-4222
Amy [email protected]

Amy DeBok http://amy.debok.c21nm.com

703.618.2601

6641-A Old Dominion Drive

McLean, VA 22101

Cell: 703-618-2601
[email protected]
http://amy.debok.c21nm.com