Investing in real estate isn't for everyone --- and it isn't without its risks.  But if you have some money to put into an investment as a down payment, and if you have financial reserves with which to cover maintenance costs and months without rental income, you might be interested in learning more.

The easiest case study of real estate investing in Harrisonburg is to consider the purchase of a two-story townhome built in the last ten years.  There are quite a few neighborhoods where these townhomes can be purchased, somewhere between $130k and $160k:

• Avalon Woods
• Beacon Hill
• Blakely Park
  
• Harmony Heights
• Liberty Square
• Wellington Park

These two-story townhouses in these neighborhoods will likely rent for between $850 to $950 depending on the age and condition.  View them on a map here.

Next, let's assume a great deal on the purchase (we'll shop until we find that deal) with a purchase price of $129,900.  However, we'll make lots of conservative assumptions as we continue.  For the time being, assume:

• $850 / month rental income
• Half a month's rent lost each year between tenants
• 20% down payment, the balance financed at 5%

This results in an estimated $927 of positive cash flow in the first year...



This might not seem like much, but when combined with a few other investment benefits, it starts to add up, even in the first year.

Year 1 Investment Benefits

• $926 positive cash flow
• $1,533 principal reduction via rental income
• $638 tax benefit for loss based on depreciation
• Total "Gain" = $3,097

It gets even better when considering the property over five years:

• $6,990 positive cash flow
  
• $8,492 principal reduction via rental income
  
• $2,394 tax benefit for loss based on depreciation
• Total "Gain" = $17,876

And if we assume a meager 2% of appreciation per year, then, over five years we'll see:

• $6,990 positive cash flow
  
• $8,492 principal reduction via rental income
  
• $2,394 tax benefit for loss based on depreciation
• $13,520 appreciation
  
• Total "Gain" = $31,396

Do recall, that you put 20% down ($26k) and paid some closing costs ($4k), so after five years you have more than doubled your money.

There are plenty of variables to consider when buying an investment property, but the basics of the cash flow are the first to thoroughly understand.  For a head start on everything else you need to learn, review this detailed investment analysis.

It's always good to get a different take on the data and situation in our market.  Feel free to share your own comments on the state of our market in the comment section below.



[From the Daily News Record, July 16, 2010]

Housing Market Enjoys Boomlet
But Area's Sales Surge Likely To Be Short-Lived

By Doug Manners

HARRISONBURG  - Buoyed by the expected expiration of federal tax credits, home sales in Harrisonburg and Rockingham County climbed in June to the highest monthly total in nearly three years. However, sales are likely to drop during the second half of the year, due in part to the expiration of the tax credit program.

According to a report released by Scott Rogers, associate broker at Coldwell Banker Funkhouser Realtors, 116 homes were sold last month, the most since August 2007, when 138 homes sold. It also marks a 35 percent increase over sales from June 2009.

To be eligible for the credits - up to $8,000 for first-time homebuyers and $6,500 for existing homeowners - buyers originally had until June 30 to close sales, but Congress extended the deadline to Sept. 30. Buyers still must have entered into a binding contract by April 30 to qualify.

‘Buffer' Needed

Local sales in 2010 are 16 percent higher than those from the first six months of last year, and Rogers said he believes that the area will reverse a four-year downturn in annual home sales.

"I think the 16 percent is enough of a buffer" to beat last year's numbers, Rogers said.

That buffer is key because sales are now expected to fall, with most tax-credit seekers having already made their home purchases (Congress didn't approve the extension until late June).

Furthermore, Rogers wrote in his report, "for most of the past four years, there is a steady decline in sales between June and December, so we will likewise probably see a decline month after month."

Contracts Plummet

In April, 121 properties went under contract, the most since March 2007. After the April 30 deadline expired, that number dropped to 84 in May and plummeted to 54 in June.

"This June's buyer commitment rate is notably lower than any of the past three Junes," Rogers wrote, "which is not a good indicator for July and August sales figures."

Rogers said it's too soon to say conclusively whether the tax credits provided a real boost to the housing market or simply shifted sales toward the first half of the year.

"Perhaps it's a wash other than the timing," Rogers said, "except that timing might have helped create some momentum in getting people feeling more positive and hopeful about the economy."

Values Continue To Drop

Despite the increased market activity, home values continue to decline, according to Rogers' report. The average median sales price is $186,450, down 8 percent from a year earlier. Rogers said median prices are not likely to start increasing until the year-over-year sales pace rises.

The average time a home stays on the market is holding steady at about six months.

Contact Doug Manners at 574-6293 or dmanners@dnronline.com

Can you spare 5 minutes?  Press play below, and I'll walk you through most of the graphs in my monthly report to provide some commentary on what we're seeing this month.

Have further questions?  Leave them in the comments below, or e-mail me at scott@HarrisonburgHousingToday.com.

Click here for the full July 2010 Harrisonburg & Rockingham County Real Estate Market Report.

We're not out of the woods yet, but several indicators are quite positive in the Harrisonburg and Rockingham County housing market. 



As can be seen above, June 2010 home sales soared up to 116 transactions -- the highest number of monthly sales we have seen in almost three years.  Many of these home sales were likely a result of the home buyer tax credit deadline, so we may see a decline in July home sales.



Above, you will note that long term indicators continue to trend very positively.  This graph shows a rolling 12-month sum of home sales to remove the seasonal variation in sales.  After several years of a declining market (in number of home sales), we have now seen a stabilization and increase for over six months.



Despite good signs as far as closed home sales go, the number of buyers committing to buy during June 2010 (contracts signed) declined, both compared to the last several months, as well as compared to the past three months of June (2007, 2008, 2009).  This will likely result in lower levels of home sales in July and August.



In addition to home sales, inventory levels also soared in June 2010 -- cresting above 1,000 homes for sale for the first time in recent past (and maybe the first time ever).  We should see a decline in inventory over the next six months based on historical seasonal trends.

Learn even more about our local housing market: click here for the full July 2010 Harrisonburg & Rockingham County Real Estate Market Report.



Do you have questions about this report, or about the Harrisonburg and Rockingham County real estate market?  Or about your house?  Or about a house you might buy?  Be in touch . . .

Scott Rogers  |  540-578-0102  |  scott@HarrisonburgHousingToday.com

Many people have asked me how much of an affect on our market the first time buyer tax credit has had over the past year.  It's a challenging question to answer --- some first time buyers who bought this year may have bought because of the tax credit, but some (or most?) may have bought even if the tax credit didn't exist.

One way that we should be able to tell if the tax credit had a big impact is to see if there are more first time buyers in the market now as compared to last year.  Thus, I decided to examine the breakdown of sales prices during May and June 2010 (it should be a lot of first time buyers) as compared to all of last year (2009).



As you can see, above, I assumed that I would probably find a pretty big increase in the proportional number of lower priced homes selling this May and June as compared to last year. 



Above, however, you'll note that there wasn't actually much of a change at all.  About 60% of the homes sold in the last two months were priced below $200k and the same percentage of the sales from last year were below $200k.

I welcome your suggestions for other ways to slice and dice the data to get at whether the tax credit had an impact on the market.  For now, we'll say the jury is still out...

Data Sources: Harrisonburg/Rockingham Association of Realtors MLS, Rockingham County Circuit Court Clerk's Office (Thanks Chaz & April!)

Many have asked me how foreclosures are affecting our local real estate market.  Absent hard data on the number of foreclosures in Harrisonburg and Rockingham County, I have always mentioned that there aren't an overwhelming number of foreclosures --- and certainly not enough to make a huge difference in home values.

Now, I have the data, thanks Chaz & April at the Clerk's Office . . .

What can be seen here is that the percentage of the home sales that are foreclosures has certainly been on the rise over the past several years.  However, despite this being based on hard data, there is still a bit of fuzzy math....

The "Sales" includes all home sales as recorded in the HRAR MLS.  This includes most foreclosures, because most such properties end up being bank owned properties that are then listed (and sold) by Realtors via the MLS.  However, if only 127 of the 177 foreclosures ended up in the MLS as sales, then the true number of total sales for 2009 would have been 866 sales, making foreclosures 20.4% of the market as opposed to 21.7% of the market.

This year (2010) and next year will be important to watch as we see how many home sales we'll have, and how many foreclosures will exist in the market.  I predict that home sales will level off this year (and thus, stop declining), but that foreclosures will increase over last year.

June has been a busy month in the local real estate market --- or at least on my end --- as a LOT of buyers close on their purchases of homes in and around Harrisonburg.  Quite a few of these buyers are first time buyers, who will receive an $8,000 tax credit when they file their taxes early next year. 

But the opportunity for this $8,000 tax credit has passed now --- the deadline to have a house under contract was April 30th, and the closing deadline is June 30th (though it may be extended).  So....what now?

The big question that remains is whether this was either:

• bringing buyers into the market who wouldn't have otherwise bought
• bringing buyers into the market earlier than they would have bought

If either, or both, of those were occurring, then slower times could be ahead. 

I've had this conversation with many people lately --- now that this whole tax credit has come and gone, can the real estate market stand on its own?  Will things slow back down again? 

The big picture is this -- fewer and fewer homes have been selling for quite a few years now:

• Only 1,438 homes in 2006 (a 14% decline from 2005)
• Only 1,248 homes in 2007 (a 13% decline from 2006)
• Only 936 homes in 2008 (a 25% decline from 2007)
• Only 816 homes in 2009 (a 13% decline from 2008)

But this year looks different!  Year to date 2010 versus year to date 2009 shows an impressive 10% increase!  That's a 23% swing in momentum, given the 13% decline from 2008 to 2009.  Certainly, home sales in the first part of 2010 could have been falsely inflated because of the tax credit --- but will the bottom really fall out of the market so much that we see another 10% - 15% decline in home sales when considering all of 2010?

I have made lots of predictions about the real estate market over the past five years, and most of them have been wrong.  I did not think we would continue to see the number of home sales fall as much as they have. 

In 2008, I thought for sure we'd see 2007 volume.  In 2009, I thought for sure we'd see 2008 volume.  So.....here I go again:

I predict that we will see 800 home sales in 2010.  That would show only a 2% decline since 2009 --- and would be a turn in right direction from the multiple years of double digit declines in sales volume.

But, as the image above alludes to, there is somewhat of an awkward pause now, as we see what the second half of 2010 has to hold.  I am thankful that the tax credit brought buyers into the market --- it helped to sell properties for many homeowners that really needed (or really wanted) to sell.  I am now hopeful as we move forward, that our local real estate market will continue to recover and strengthen through the balance of 2010.

Click here to view my full June 2010 Harrisonburg & Rockingham County Real Estate Market Report.

Exciting Fact #1 --- May 2010 home sales declined 5% as compared to May 2009, but year-to-date sales (January through May) are up 10% over last January through May.




Exciting Fact #2 --- After three and a half years of steadily declining home sales (quantity, not prices), we have now seen stabilization or increases in home sales for over six months.




Not-So-Exciting Fact #3 --- Sales volume has declined sharply for four years now (red line), and median home values have declined gradually for two years (green line).  Despite early positive indicators for the past several months, we're not out of the woods yet.




Other tidbits that you'll discover in my June 2010 Harrisonburg & Rockingham County Real Estate Market Report include:

• Average days on market is down in May 2010.
• Inventory levels have hit a new high.
• Land sales (1+ acres) are soooo slow this year.

Click the image below to read the full report...

Intrigued by a post over at RealCentralVA exploring the number of contracts for single family homes for each of the 10 past months of May in Charlottesville and Albemarle County, I thought I'd see how Harrisonburg and Rockingham County are performing compared to our neighbors over the mountain.

Reading Jim Duncan's article, you'll note that the number of buyers signing contracts for single family homes has decreased for the past several years.  Here is an overlay of Harrisonburg / Rockingham data with Charlottesville / Albemarle data....



Again, the data above is showing the number of contracts that were signed in the month of May (for the past five years) on single family homes in Harrisonburg and Rockingham County as compared to Charlottesville and Albemarle County.

To make it a bit clearer....



As you can see, the number of home sales (contracts in this case) has continued to decline for the past several months of May in the Charlottesville area, but those same measures have started to level off and increase here in Harrisonburg and Rockingham County.

Take a look at the graph below to see how buyer momentum is shifting in our market.  Do note, of course, that this is people looking at properties online, which is not the same as buyers committing to buy properties.


   click the image above for a higher resolution PDF

It will take several more months to know whether the Harrisonburg and Rockingham County real estate market really has turned the corner towards recovery, but the graph above shows yet another indicator that we may be headed in the right direction!

There are a LOT of homes for sale right now....995 residential properties in Harrisonburg and Rockingham County as I type.  BUT.... the current levels aren't too much higher than we've seen during the past two spring/summer seasons!


   Click the graph above to view a higher resolution PDF.

Peak Inventory Levels:

• Current inventory = 995 residential properties
• June 2008 inventory = 956 residential properties
• April/June 2009 inventory = 932 residential properties

I suppose we might see even higher inventory levels as we move into June (CAN WE HIT 1,000???) --- but that still isn't too much higher than recently past years.

If you're a buyer....what is your experience of the current inventory?

• Are there way too many houses to choose from right now?
• Can you still not find that perfect home despite many choices?

For the visual learners amongst us, here's a new take on the mix of homes for sale based on their price range, and the demand for such homes....



This (hopefully fun and self-explanatory) graph is based on inventory levels as of May 10, 2010, and average home sales per month from May 2009 through April 2010.

Questions?  Clarifications?

Home sales have certainly started to bounce back in 2010...



Skeptics certainly won't believe we're making any progress until we pass June 30th and the end of the tax credit season.

Big picture thinkers will want to delve into why our market has outperformed so many others across the country..

But now let's examine what is actually selling this year:



Sales of homes priced under $300k have increased compared to last year.
Sales of homes priced above $300k, however, have declined this year.

Is it because of the tax credit?  Is it because buyers of sub-$300k homes often don't have a home to sell before buying?  Plenty of possibilities --- but so far the market is looking strong for the spring and summer!

Some reports indicate that Americans lost over $1,000,000,000,000 (one trillion dollars) in home values in the last three months of 2009.  When looking at the sum of the last several years, the figures are even more staggering – declining home values across the United States have resulted in trillions of dollars of losses for American homeowners.  Yet during this same time period, homes values in Harrisonburg and Rockingham County have only been marginally affected.  In fact, it wasn't until 2009 that this area saw any significant decline in median sales price, and then it was only a 5% decline.  So why and how, in this time of rapidly declining home values, have homes in the central Shenandoah Valley held their value?

First, while Harrisonburg and Rockingham County did see a sharp increase in home prices (51% increase in median home value between 2003 and 2006), our median sales price started out quite low ($127,700 in 2003) and only increased to $192,983 in 2006.  Median sales prices in many other metropolitan areas increased to much higher levels leading to borrowers stretching pursuing riskier mortgages for their purchases. 

In such areas with significant increases in home values, many homeowners took on risky mortgage programs such as variable rate mortgages, interest only mortgages, or mortgages with a teaser rate.  Those with 30-year fixed rate mortgages knew what to expect of their housing payment and likely were able to continue to pay their mortgages after buying several years ago, but those with these higher risk mortgages often had trouble keeping up with their mortgages and were foreclosed upon.  Variable rate mortgages have been somewhat problematic, but not to a great degree because interest rates have remained relatively low for the last several years.  Interest only mortgages have proven to be quite dangerous, because the homeowners has not been paying down any principal on their mortgage, and thus does not build up an equity in their home absent any appreciation in the market.  Mortgages with teaser rates provided for a very low rate (1%, 2%) for a short time period in order to qualify a home purchaser.   These teaser rate mortgages would then reset to a much higher rate after several years, then putting the homeowner in financial duress, unable to make their mortgage programs

Since home values didn't go too drastically in this area, home buyers did not (in large number) feel pressured to obtain risky mortgages with variable or escalating future housing payments.  As a result, we have seen a very low number of foreclosures in the central Shenandoah Valley.  I have heard, anecdotally that earlier in 2009 over half of the homes on the market in the Winchester area were "bank owned" homes --- homes that had been foreclosed upon.  This high, high number of foreclosures lead to rapid decreases in home values, as banks quickly reduced the prices at which they would sell their inventory in order to get these homes off their books.  Thus while high foreclosure rates in other metropolitan areas lead to declining home values, the very low foreclosure rate in Harrisonburg and Rockingham County has lead to relatively stable home values.

The Harrisonburg and Rockingham County market has also been greatly protected by its diverse and stable local economy.  We have not seen significant losses of jobs over the past five years, which could have put large numbers of homeowners in a position where they had to sell their homes rapidly because they were unemployed, or because they were moving to another area to find work.  Our economy includes jobs from many sectors, and is largely supported by the colleges in universities in our midst.  It also helps that we have always had very low unemployment rates as compared to most every other metropolitan area in the country.

Since 2005, the pace of home sales has declined drastically, with only 813 home sales in 2009 compared to 1,669 home sales in 2005.  The law of supply and demand would suggest that such a large reduction in demand (a 51% decrease) would certainly lead to a drastic decrease in home values.  Yet, in the same time frame (2005-2009), the median home price has shown a net increase from $169,900 to $186,300 (a 10% increase).  While we have seen a 5% decrease in home values between 2008 and 2009, our local housing market continues to be amazingly resilient, without any significant shift in home values.

While we can't point one particular factor that has protected home values in the central Shenandoah Valley, it is highly related to the relatively slow and small increase in home values, the conservative mortgage programs used by home buyers, our low foreclosure rate, and our stable local economy.

Earlier this week I posted my monthly market report for Harrisonburg and Rockingham County and I pointed out that there were several indicators that suggested we might be seeing an end to the local real estate downturn.  Several of you were quite skeptical -- attributing any short-term positive indicators to the tax credit.  A few clarifications before I get to some statistics:

1. The number of local home sales has declined quite significantly for the past five years.  Prices have declined relatively slowly during that same time period.  From my perspective, a local housing market recovery will take place when we first start to see more home sales than in the past, and after that we'll see stabilizing and then increasing prices.
   
2. I am NOT sure that we really are seeing a definite and lasting change towards the better in our local housing market.  BUT....several key indicators in my market report indicate that we might be.
3. It's really o.k. if you are skeptical --- in fact, it's what keeps me on my toes!
   

The main point of contention that I have heard relative to my report is that though there were a LOT of contracts written in March and April, that this was likely almost entirely because of the April 30th deadline to sign a contract in order to receive the $6,500 or $8,000 tax credit.  So.....if the skeptics are correct, we should see a significant drop in contracts being signed in May, right??

First let's look at signed contracts per month:

• March 2010 = 95 contracts
• April 2010 = 121 contracts
• May 1 - 13, 2010 = 46 contracts
  Extrapolating, that will likely be 106 contracts for the month!

Next, let's compare this May to last May:

• May 1 - 13, 2009 = 29 contracts
• May 1 - 13, 2010 = 46 contracts

Finally, remember that my tentative optimism is not just based on March and April 2010. 



Each data point in the graph above shows the number of sales in a twelve month period.  It often takes months for a trend to appear using this metric, but it seems pretty clear to me that over the past six months (which includes data from the last 18 months) we have seen a significantly different trend than we saw between 2006 and 2009.

What do you think?  Still skeptical?

I have been waiting a long time to have tangible, factual, good news to share about a recovery of the Harrisonburg and Rockingham County housing market.  I think that time is coming, and here's why ---

April 2010 home sales increased 62% compared to April 2009!  (see graph below)




Long term home sales indicators continue to show stabilization and growth!  (see graph below)



Home buyers committed to buy homes in record numbers in March and April 2010!  (see graph below)



Learn more about our local housing market by clicking the image below to read my full market report.

Lots of people who are renting have thought about buying . . . and lots of people who are thinking of buying wonder whether they should keep renting.  Here's a highly interactive calculator to help you compare your options, thanks to the New York Times.



Using this online calculator, you can enter in all sorts of variables including all of your up front and ongoing costs for buying as well as renting.  The resulting graph shows you how long it would take for it to have been worthwhile to have bought instead of renting.

The illustration above is with a $160,000 townhome purchase, compared to renting the same townhome for $950 per month.  With a 5% interest rate on a 97.5% mortgage, it would take four years to be worthwhile to buy --- if home values were increasing at 1% per year.  In the first three years, your annual costs would be higher for having bought.  Starting in the fourth year, your annual costs would be LOWER for having bought.

Longer term normalized price increases per year range from 3% to 4%.  With 3% per year increases in home values, you start having annual savings each year after only two years.

If you are wondering whether you should rent or buy a home, feel free to use this handy calculator, or schedule a time to meet with me and I can help you explore the pros and cons of each option.

Perhaps it was the tax credit.  Perhaps our local housing market is starting to recover.  Perhaps it is a bit of both!

In April 2010, an astounding 121 contracts were ratified on residential properties in Harrisonburg and Rockingham County.  This is the highest number of contracts in a single month since March 2007!

Despite the contract deadline having passed for the tax credit, I believe we will still continue to see strong sales as we move through the summer.

Apparently, long enough for the ivy to grow through the windows!

But on a more serious note --- or at least more focused on data.....

In the past year, there have been 828 home sales, 97 of which took longer than a year to sell, which is 12% of the home sales.

There are currently 989 homes on the market for sale, 192 of which have already been on the market for more than a year, which is 19% of the active inventory.  If we assume it would take another 60 days for any of these active listings to sell, we find that there are 250 that have been on the market for at least 10 months --- in other words, 25% of the active inventory.

So, it would seem --- no big surprise --- that there are many more homes on the market than there are buyers to buy them.  This, thus, results in many homes languishing on the market. 

Of note, as I mentioned earlier this week, we're not really headed in the right direction.  So far this month (Apr 1 - Apr 28) we have seen 217 new listings come on the market in Harrisonburg and Rockingham County, and in that same time only 57 sold.

Conclusions & Directives:

1. If you don't have to sell, don't --- it's not a great time to do so, given all of your competition with so many other listings.
    
   
2. If you have to sell (or really want to), know that it may take longer than you expect.
    
   
3. Don't believe the cartoon in yesterday's Daily News Record.....yet.....

Over the last several years, we have seen fewer and fewer (and fewer) homes sell each year in Harrisonburg and Rockingham County:

• 2005 = 1,669 sales
• 2006 = 1,438 sales
• 2007 = 1,248 sales
• 2008 = 936 sales
• 2009 = 816 sales

Each year I (foolishly?) hope that we have finally seen the end of the ever decreasing number of home sales in our local market.  But this year, we may actually have rounded that corner. 

In the first 115 days of 2010 (Jan 1 - Apr 25) we have seen:

• 186 home sales (compared to 179 last year)
• 268 homes going under contract (compared to 244 last year)

From both of the numbers above, our market seems to be headed in a good direction.  But perhaps ALL homeowners have caught wind of this, as there is a massive number of new listings on the market:

• Last year there were 389 new listings between Jan 1 and Apr 25.
• This year there have been 629 new listings between Jan 1 and Apr 25.

WOW --- did you catch that?  That's the laugh, by the way --- that somehow our market would keep up with all of these new listings!