Click here to download Market Update charts for April 2012.




The apparent real estate market recovery continued in the Harrisonburg area in April. Year to date in the Harrisonburg-Rockingham Association of REALTORS Multiple Listing Service (HRAR MLS), the sales are slightly ahead of last year, and contracts are up by better than 1/3 over last year indicating sales in May and June will exceed last year's sales. Buyer activity continues to be strong, with leading indicators such as showings and website traffic continuing to increase as the year progresses.

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Click here to download Market Update charts for March 2012.




The first quarter of 2012 finished well for the Harrisonburg/Rockingham County real estate market. For the first time since 2007, residential sales in the first quarter of the year exceeded sales in the first quarter of the prior year - a great start for 2012!

Residential sales showed a typical seasonal increase in March, with 85 sales recorded by the Harrisonburg-Rockingham Association of REALTORS® Multiple Listing Service (HRAR MLS) compared to 69 residential sales each in January and February. Buyer activity remains strong, with the number of properties "Under Contract" in the HRAR MLS (233) and the number that went Under Contract in March (126!) indicating April and May will be strong months as well.

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What does your loan officer and their underwriter need to know about you when you apply for a home mortgage?  While there are a variety of institutions and financing programs, the basics can be boiled down to what has been called  “The 4 C’s of Underwriting”- Capacity, Credit, Cash, and Collateral: 

CAPACITY

CAPACITY is the analysis of comparing a borrower’s income to their proposed debt. It considers the borrower’s ability to repay the mortgage. Lenders look at two calculations (we call ratios). The first is your Housing Ratio. It simply is the percentage of your proposed total mortgage payment (principal & interest, real estate taxes, homeowner’s insurance and, if applicable, flood insurance and mortgage insurance – like PMI or the FHA MIP) divided by your monthly, pre-tax income. A solid Housing Ratio (often called the front end ratio) would be 28% or less; although, at times loans are approved at a significantly higher number. That’s because your front end ratio is looked at in conjunction with your back end ratio.

The back end ratio (referred to as your Debt Ratio) starts with that mortgage payment calculation from the Housing Ratio and adds to it your recurring debts that would show up on your credit report (auto loans, student loans, minimum credit card payments, etc.) without taking into consideration some other debts (phone bills, utility bills, cable TV). A good back ratio would be 40% or less. However, loans sometimes are granted with higher debt ratios. Understand that every application is different. Income can be impacted by overtime, night differential, bonuses, job history, unreimbursed expenses, commission, as well as other factors. Similarly, how your debts are considered can vary. Consult an experienced loan officer to determine how the underwriter will calculate your numbers.

CREDIT

CREDIT is the statistical prediction of a borrower’s future payment likelihood. By reviewing the past factors (payment history, total debt compared to total available debt, the types of monies: revolving credit vs. installment debt outstanding) a credit score is assigned each borrower which reflects the anticipated repayment. The higher your score, the lower the risk to the lender which usually results in better loan terms for the borrower. Your loan officer will look to run your credit early on to see what challenges may (or may not) present themselves.

CASH

CASH is a review of your asset picture after you close. There are really two components – cash in the deal and cash in reserves. Simply put, the bigger your down payment (the more of your own money at risk) the stronger the loan application. At the same time, the more money you have in reserve after closing the less likely you are to default. Two borrowers with the same profile as far as income ratios and credit scores have different risk levels if one has $50,000 in the bank after closing and the other has $50. There is logic here. The source of your assets will be examined. Is it savings? Was it a gift? Was it a one-time settlement/lottery victory/bonus? Discuss how much money you have and its origins with your loan officer.

COLLATERAL

COLLATERAL refers to the appraisal of your home. It considers many factors – sales of comparable homes, location of the home, size of the home, condition of the home, cost to rebuild the home, and even rental income options. Understand the lender does not want to foreclose (they aren’t in the real estate business), but they do need to have something to secure the loan against, in case of default. In today’s market, appraisers tend to be conservative in their evaluations. Appraisals are really the only one of the 4 C’s that can’t be determined ahead of time in most cases.

Each of the 4 C’s are important, but it’s really the combination of them that is key. Strong income ratios and a large down payment with strong reserves can offset some credit issues. Similarly, long and strong credit histories help higher ratios….and good credit and income can overcome lesser down payments. Talk openly and freely with your loan officer. They are on your side, working with you and your REALTOR® to get you into the home you want!

Here comes Spring, historically the time of year when buyers awake from the winter slumber of the holidays and snowfall, and go on their pilgrimage to look for new housing. Houses look better in Spring with green grass, blooming trees, and flowers.

Plus, buyers who find a home in the next 60 days can close after the school year ends and enjoy the summer months in their new backyards. It’s almost a rite of passage; baseball teams go to spring training, buyers go look at homes, and the birds fly back north.

But this Spring is different than those of recent memory…

• Because of the mild winter we experienced here in the Shenandoah Valley buyers have been out for months – making offers and buying homes. .  Buyer activity has been unusually high since early February.
• Many sellers have finally come to understand that they need to have a compelling price on their home to attract buyers. The days of listing your home and negotiating down are over because there are homes on the market already priced correctly, and those are the homes that buyers are going to. The overpriced inventory doesn’t even get a chance to negotiate down.
• Rates have ticked up as economic news (like unemployment numbers) has improved. That, coupled with rising mortgage insurance premiums and guarantee fees (on FHA loans) , seems to have given some sense of urgency to buyers.
• The looming shadow inventory, which most certainly will keep downward pressure on home prices (when added to easier short sale approvals), has tended to encourage home sellers to be more realistic in their expectations.
• The abundance of information available to consumers has further increased their need for sound advice from top-notch real estate and mortgage professionals. The cream is certainly rising to the top in those professions, with top agents in our arae reporting they are busier than they have been in years.

Low interest rates, a tremendous selection from which to choose, and the seasonality of it all makes for an exciting next 60-90 days. Our advice to anyone looking to buy or sell is that waiting to be aggressive could be a fatal mistake if you hope to find the best deal. From our experience, the best deals come when more people are competing for them…and that time is NOW!

Click here to download Market Update charts for February 2012.




We are making some important changes to our market report this month. First, we are adding a new infographic entitled "Months Supply of Inventory". This graphic will show, by area of the County, how many months supply of homes for sale exist at the current pace of sales. Sales over the past 12 months will be used to calculate the current pace of sales. This graphic will give an easy to read snapshot of the supply vs. demand balance throughout our area. As a rule of thumb, a 4 – 6 month supply is considered a healthy, balanced market. You will see on the graphic that all parts of the County are above that figure, but are also all below 12 months (many areas were above 12 months supply last year), which is a good trend and indicates our market is finally coming into balance.

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For the nation as a whole, the supply of homes on the market in January was at the lowest point in nearly seven years. Total existing home sales increased 4.3% in January to a seasonally adjusted annual rate of 4.57 million.

Just as we are experiencing more activity locally, nationally there seems to be "strong gains in contract activity in recent months" which shows "buyers are responding to very favorable market conditions" said Lawrence Yun, NAR Chief Economist.

"The national average commitment rate for a 30-year, conventional, fixed-rate mortgage was a record low 3.92 percent in January, down from 3.96 percent in December; the rate was 4.76 percent in January 2011; recordkeeping began in 1971."

This information was provided by the National Association of Realtors. To read more, click here.

Click here to download Market Update charts for January 2012.



Although January's sales were not stellar, they were very comparable to Januaries past, as can be seen on the Closed Volume and Closed Transactions charts. January is typically one of the slowest months of the year due to the decreased buyer activity during the holiday season.

The real news in real estate locally is the activity level seems to have gone through the roof! We will begin to see the results of this activity with late February settlements, but probably won't really feel it until March and April. When we take a look at some of the leading indicators in our business like phone calls to our office, showings set up for our listings and visits to our website, we are seeing activity levels higher than our typical summertime peaks. Could it be that Buyers

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The Washington Post reported on Friday that 243,000 jobs were added in January, a stark contrast to the 155,000 jobs that economists predicted. On top of that good news, the unemployment rate dropped to 8.3%, which is the lowest unemployment rate in three years.

While politicians continue to argue over what caused the dramatic shift in hiring, we at Kline May Realty prefer to look at this from a consumer and housing aspect. This positive news will drive consumer confidence up and help in the effort to keep our local housing market on the rise (home sales were up 3.3% in Harrisonburg and Rockingham County in 2011). As consumer confidence increases, we anticipate home sales will also increase. As home sales increase, mortgage rates will come off of their all-time lows. Because of this, we feel that this spring will be one of the best times to buy a home in the Harrisonburg and Rockingham County area.

It seems there is no shortage of opinions as to where home prices are headed in 2012. From Clear Capital’s expectation that prices will show a ‘slight uptick’ this year to Fitch’s projection that prices ‘will fall another 13 percent’, there is no consensus as to where real estate values are headed. How can there be such a disparity of opinion among industry experts? Well...prices are determined by the relationship between supply and demand and there are many unanswered questions regarding both of these components.

Questions about Demand

Will this be the year that the 5.9 million adults between the ages of 25 and 34 that are still living with their parents decide to purchase a home of their own?

With mortgage payments lower than rent payments in the majority of the country, will first time buyers finally decide it makes more financial sense to buy rather than rent?

Will the baby boomers take advantage of the great deals available and start purchasing vacation and retirement homes?

Will investors continue to purchase large quantities of distressed properties?

Will hedge funds negotiate a deal with the banks for bulk purchases of foreclosures?

Questions about Supply

Will 2012 be the year that builders again increase inventories of newly constructed homes?

Will baby boomers put their primary residences up for sale and relocate to their retirement destinations?

Will 2012 be the year that the shadow inventory of foreclosures finally makes its way to market?

If prices depreciate, it will force more homes into a negative equity situation. Will this create another surge in short sales and foreclosures?

Will the government put together a plan to convert large numbers of foreclosures into rental properties?

Bottom Line

With so many unanswered questions regarding both the demand for housing and supply of properties, it is very difficult to determine where prices will be at the end of the year. We believe the Harrisonburg area market will continue to see home prices soften through the first half of the year, possibly flattening out this summer.  From there we are hoping to see a slow, but steady return to "normal" price appreciation of 2% - 3% per year.   Beyond being a just "local" issue (as opposed to relying on national trends), your home price is heavily influenced by comparable homes sales in your neighborhood.  Talk with a Kline May Realty agent to get the facts on what's going on in your part of the City or County!