BRAC Relocation Brings Good News for Potential Homeowners

Those affected by relocation assignments from the Base Realignment and Closure Commission are finding great news upon arriving in their new city: they can afford to own a home.

While the national housing market is experiencing a slowing in growth, some local markets are booming, unaffected by dour predictions for the economy. As a result, individuals and families affected by BRAC are finding it easier to become homeowners, and many are surprised to find out what kind of home they can afford.

The housing market in Huntsville, Alabama is one such example. Redstone Arsenal in Huntsville is the relocation site of AMC headquarters and USASAC. The average sales price of a home in Huntsville is $189,813. Using the Home Price Comparison Index, a home of this price is equivalent to a $417,756 home in Woodbridge, Virginia, a $694,994 home in Alexandria, Virginia or a $725,376 home in Washington, DC. When asked about the average home prices in the areas around Fort Belvoir, Kathy Stark, a Northern Virginia REALTOR®, estimates the average townhouse price to be $350,000. Stark says that the average price for a modest single-family home would be between $600,000 and $650,000. Needless to say, the Huntsville housing market is a bargain.

Brenda Elliott, broker/owner of WEICHERT, REALTORS® - The Executive Group and veteran Army wife, explains the perks of relocating to an area like Huntsville. “When my husband retired from the Pentagon, we moved to Huntsville with his new job. This area is growing rapidly, which makes it a really great time to invest in real estate.”

Elliott is not understating the growth of the area. 10 years ago, the average sales price for a home in the Huntsville market was $115,518, and there was just over $196 million in real estate sold. In 2007, residential real estate in Huntsville was a $581 million industry.

“The market is hot, and houses are selling quickly,” says Elliott. “This is great news for sellers, but it’s also good news for potential buyers, because Huntsville real estate is a smart investment. This growth shows no sign of cooling. In 1997, the average time a house stayed on the market was 169 days. In 2007, our average number of days on market was 68.”

There are also options for those looking to super-size their living situation. “There are several neighborhoods with luxury homes where just the lot can start at $200,000” says Elliott. “For people looking in the $400,000 to $700,000 range, Huntsville has many options.”

Sounds like great news for those relocating, but what about people staying in Northern Virginia?

“The Huntsville real estate market has some great investment properties, and many sales agents in the area work exclusively with out-of-town investors” says Elliott.

Huntsville is also an attractive option for those looking to own a second home. The area has many amenities, including courses on the critically acclaimed Robert Trent Jones Golf Trail located in the Hampton Cove area. The Hampton Cove RTJ facility has 54 holes, including 36 championship holes and an 18-hole short course. The Huntsville Museum of Art offers diverse programming, from an Italian Renaissance exhibit from the Uffizi Gallery in Florence, to a salute to 20th century American music with portraits by photographers such as Annie Liebovitz and Philippe Halsman.

For those more interested in shopping, the new Bridge Street Towne Center is a retail experience not to be missed. Bridge Street bills itself as a mixed-use lifestyle center, with 550,000 square feet of retail, office and hotel space on 100 acres. Designed by a development firm from Los Angeles, this open-air environment is styled to resemble an Italian village, with gondolas floating on waterways amidst the designer boutiques, luxury movie theatre and future site of the Westin Hotel. Bridge Street’s L.A.-based design company, O&S Holdings, predicts that “lifestyle centers,” such as this, are the future of retail.

Huntsville is certainly not short on activities, including the Huntsville Symphony Orchestra, Broadway Theatre League, Botanical Garden, Space Camp and Concerts in the Park, a summer outdoor concert series. Huntsville also has the Big Spring Jam, a three-day outdoor concert festival that draws 230,000 attendees to view performances by artists such as Destiny’s Child, KC & the Sunshine Band, Blues Traveler and Taylor Swift.

Huntsville’s growing industry also makes it a great place to invest. In addition to the U.S. Army’s Redstone Arsenal, Huntsville is home to the NASA Marshall Space Flight Center and Cummings Research Park (CRP). CRP is one of the world’s leading science and technology business parks. CRP covers 3,843 acres and hosts Fortune 500 companies, local and international high-tech enterprises, US space and defense agencies and higher-education institutions. It is the second largest research and technology park in the United States and the fourth largest in the world. The Association of University Research Parks (AURP) ranked CRP as the Most Outstanding Science Park in the World. There is still 500 acres available for development, meaning there is still much expansion to be seen in this area.

Nearly every major U.S. aerospace corporation is represented in Huntsville, with 90+ companies employing more than 11,000 people in the local aerospace industry. Huntsville also plays a role in the U.S. Army’s technology development programs, with military and support contract employment reaching over 32,000.

Those who have previously relocated from Northern Virginia to Huntsville say they could not be happier with their new city. “Huntsville has so much to offer” says Elliott. “It’s a big city with a community spirit.”

Real Estate and Astrophysics

It’s been recently reported that an act of galactic violence never before witnessed by astronomers is occurring a few galaxies over, and while reading the story, I couldn’t help but think of the housing market.

According to astrophysicists tracking the event, a massive black hole at the center of a distant galaxy is attacking a smaller nearby galaxy using a jet of highly charged radiation. (How rude!) Black holes are areas of highly concentrated mass that exist in space. Just as the Earth has a gravitational pull that keeps us firmly planted on the ground due to its mass, black holes have a strong gravitation pull as well. There is one slight difference here though: escape velocity – the speed required to “escape” the gravitational pull of the mass in question. The Earth has an escape velocity of 25,000 mph. In order to launch an object into space from Earth, the space shuttle/rocket/paper airplane, has to go 25,000 mph or faster. The moon, a much smaller mass, has an escape velocity of 5,300 mph. A black hole’s escape velocity is faster than the speed of light. Therefore, nothing, not even light, can escape a black hole.

How are black holes created? The gravitational collapse of a star is the most common origin for this phenomenon, but scientists say black holes can be created using a particle accelerator. While experts say the chances of planetary annihilation resulting from an artificially induced black hole are miniscule, alarmist organizations such as the Lifeboat Foundation claim the danger is so imminent, we should establish “self-sustaining colonies elsewhere.” I’ll add that to my “To Do” list, but first, I’ll explain what all this has to do with real estate.

The ability to “artificially induce” a black hole makes me think of an economic concept we’ve heard a lot about lately: recession. I think that there are two types of recessions: naturally occurring recessions as economies go through normal cycles, and induced recessions, caused by fear and panic that something bad will happen.

While it is heavily reported that we are teetering on the verge of recession, this is a media succubus manufactured by scaremonger tendencies that drive content on slow news days. “Let’s see…no new information on Israel and Palestine? Hmmmm…we could report about the 375 people running for president…no, no…Wait! The housing market! Let’s talk about how bad it is! Go get an old lady who just lost her home! She’ll be great on camera!”

If you don’t believe me, you’ve never been in a newsroom staff meeting pitching story ideas.

On Thursday, December 20, 2007, the U.S. Commerce Department made an astounding discovery: things aren’t as bad as we thought. The final numbers on third quarter GDP have been reported, and the Gross Domestic Product increased 4.9%. This number is unchanged from the estimate made a month ago.

Meanwhile, media pundits are scratching their heads, asking, “Well…how did that happen? Are you sure about those numbers? Let me see that report again…”

As a result of this “surely you must be kidding” reaction from the press, the GDP statement has been reported with much skepticism and the good news is buttressed by “howevers” and “be that as it mays.”

The Associated Press article on the GDP release is a brilliant example of how to deliver good news in a way that hurts: “The U.S. economy sprinted ahead at its fastest pace in four years during the summer, although it is expected to limp through the final three months of this year as the housing and credit debacles weigh on individuals and businesses alike.”

The confusion over the 2007 third quarter good news dates back to late in 2005, when reports of housing market Armageddon started appearing.

December 8, 2005 – USAToday: “Sustained decline forecast in U.S. housing market”

February 28, 2006 – ABCNews: “Homes Sales Down: Is the End Near?”

May 5, 2006 – FORTUNE Magazine: “Welcome to the dead zone” Real estate survival guide: The great housing bubble has finally started to deflate, and the fall will be harder in some markets than others.

August 24, 2006 – The Big Picture: “Is a Housing Crisis Approaching?”

August 27, 2006 – The Washington Post: “The Housing Crisis Goes Suburban”

September 7, 2006 – USAToday: “Realtors forecast what home builders know: Home sales this year will tumble.”

September 14, 2006 – USAToday: “More Fall Behind on Mortgages”

November 2, 2006 – CNN Money Magazine: “Slow-market crisis: Stuck with two homes” Imagine you buying your dream home only to discover you're unable to sell your current one.

January 25, 2007 – MSNBC: “Has housing market bottomed out?” The final housing numbers for 2006 are in, and they confirm what anyone who bought or sold a home last year has suspected: It was the worst housing slump in nearly two decades.

April 2, 2007 – The Boston Globe: “Housing Crisis Comes Knocking”

March 11, 2007 – The New York Times: “Crisis Looms in Market for Mortgages”

While there is no doubt that many factors may have contributed to the deflation of confidence in the housing market, there is one constant factor in this supposed “crisis”: people who keep saying we’re in a crisis. If you tell everyone something is real enough times, they will start to believe it. The Earth is flat, women can’t do math, and the housing market is crashing.

So what exactly is the escape velocity that we need to propel ourselves out of the clutches of this artificially induced black hole? How do we fight a fake recession? Education at light speed! Stephen Hawking hypothesized that black holes can eventually evaporate. Maybe this fake recession will evaporate if we refuse to acknowledge that it exists.

What does the Fed mean?

As any economist will tell you, the statements by the Federal Open Market Committee (FMOC) on the federal funds rate are cryptic, and purposefully so. In attempting to decode the press release, economists and the business press turn into what seems like a gaggle of girls performing a post-date analysis for a sorority sister: “When he said he liked you, did that mean he ‘liked you’ liked you, or just liked you?”

At the risk of likening Ben Bernanke to my ex-boyfriend, he has communication issues. The FMOC has 12 voting members, comprised of selected Federal Reserve Bank presidents and seven Fed governors, and has eight regularly scheduled meetings a year. After each of these meetings, a carefully crafted press release is issued to the public at 2:15p.m. on the day the FMOC meeting concludes. This statement contains the results of the deliberations of the meeting, and is about as extensive as Susan Lucci’s Emmy collection. The Fed uses the same format for the release each time, causing economists to intensely analyze words and phrases that were omitted from the current release. It barely fills a single page and contains virtually no numbers; it’s brevity leaves much room for interpretation by the media, and everyone is trying to figure out one thing: How does the Fed presently perceive the economy?

At the risk of getting trampled in the mêlée, we’re going to jump right in and do a little of our own interpretation, independent of the opinions from the news media (after all, turning to The New York Times for their opinion is like listening to the best friend who says you looked good with the perm).

The Federal Reserve Release is as follows (with my notations added in bold):
“The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/4 percent. (The function of this sentence to summarize the outcome of the FOMC vote on interest rates – as a note, September was the first time the central bank dropped the funds rate in four years.)

“Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time.
(This brief section describes the economy’s current state based on the latest economic indicators.)

“Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. (The preceding and the following paragraphs are the most carefully studied in the release. This part highlights the Fed’s assessment of inflation and growth. What trends do they display, and what are the underlying forces that propel both?)

“Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
(This paragraph is more forward-looking and offers some insight into what the FOMC will monitor most closely between now and the next meeting. Here’s where economists and investors get a sense of what the Fed will be inclined to do when it meets next.)

“Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman;…and Kevin M. Warsh. Voting against was Eric S. Rosengren, who preferred to lower the target for the federal funds rate by 50 basis points at this meeting.
(This lists the names of FOMC members who participated in the meeting that morning and how they voted. Generally speaking, participants on the FOMC will align their votes with that of the Fed chairman. On matters as important as setting interest rates, the preference is to have unanimity among the members. There are occasions when certain participants disagree so strongly with the Fed chairman’s recommendation that they will formally register their disapproval. (this release, for example))

“In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 4-3/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and St. Louis.” (This statement is not typically included, but September, October, and December’s releases have all seen similar actions. The discount rate is the interest rate banks must pay when they borrow from the central bank. The discount rate cut is intended to alleviate liquidity issues many banks are now facing.)

The rationale behind the lower rates is that it will induce consumers and businesses to boost spending, which will invigorate economic activity. Therefore, the solution to what seems to be a slowing economy is speeding up the economy (wow, sounds so simple, and yet…). “But Erica, I’m scared!” I hear you saying. “I keep hearing the economy is so bad,” you nervously say. In that case, have you heard that from July through September, the economy logged its best growth in four years? I bet you didn’t. Ignore what you hear and get out there and invigorate that economy! (Besides, it’s better idea than getting a perm)

Recession is Unlikely

According to Giles Keating, Head of Global Research for Credit Suisse a recession in the United States is unlikely. While the U.S. economy is slowing down, fears of a market collapse are over-rated.

Below is an interview Joy Bolli conducted with Giles:

Joy Bolli: What is your take on the world economy at the moment?
Giles Keating: The world economy is not in bad shape at the moment despite the credit crisis. The latest data suggests there is a slowdown underway in the US and in Europe as well, which has hit a bit faster than expected. And, China and Asia are still booming. Even those slowdowns in Europe and America are looking unlikely to turn into recession, so the outlook at the moment is not unhealthy.

Is Switzerland also affected by this slowdown?
Well, Switzerland can't be immune because it is a big exporter, but overall I think the Swiss economy is looking pretty healthy. The likelihood is therefore that Switzerland will see a period of slightly slower growth, but the risk of it coming anywhere near recession are extremely low. Perhaps within nine months, or in even less time, we will see things accelerating again.

You mentioned Asian growth. How long can this growth be maintained in the wake of the US slowdown?
It looks, at the moment, that Asia will be relatively unscathed by the US slowdown. Given that we are not seeing the US go into an outright recession, and with US demand growth easing back a bit, the effect on Asia will not be overwhelming. In fact, it might help to reduce Chinese growth from almost 12 percent down to almost 10 percent, and that would still be a very rapid growth rate.

And how is that ongoing Asian boom impacting other regions?
The impact is profound. Throughout Asia, whether India, China or some of the smaller economies in the region, we are really seeing some of these countries becoming the power houses of the world economy. They are providing a lot of less expensive goods, which helps to keep the lid on inflation. They are also consuming a lot of raw materials and energy, which is pushing oil prices to high levels, as well as metals and food. That, of course, is bad for inflation and a problem that the rest of the world has to cope with. So, the growth is double-edged.

How should investors react to those rising commodities prices?
Commodities have been, and still are, in a long-term bull market, which could probably go on for a magnitude of another three to four years. Or perhaps even a bit longer. Of course there will be cyclical swings within that time and over the next two or three months, we might see a slightly slower period as a result of one of those swings. As a strategic matter, we do believe investors should have exposure to commodities. However, we certainly recommend that they do so through specialist funds, and we advise that they choose those funds pretty carefully. It is a matter of having a fund that is not too heavily weighted toward energy, which some are. Some are better diversified, and there are a number of technical issues to consider, such as the importance of roll-yield. Therefore, I recommend that investors take specialized advice to minimize the reliance on roll-yield in their commodity exposure.

Is there an inflation risk here?
At the moment, it looks as though the inflation risk is not great enough to prevent a Fed cut if it chooses to do so. The Fed and the other central banks must keep an eye on inflation, not least because of those energy and raw materials prices. Currently, those high resource costs don't seem to be feeding into other parts of inflation and this leaves the Fed free to cut rates again if they want to.

The markets have been rallying. Is this a trend that can last?
The equity markets have done very well since that correction was made in August. Since then, we have seen a strong rally and many markets are breaking new highs. I think that is due in part to the fact that for sustainable reasons, the valuations are still not particularly high and because the economic growth outlook, as we discussed, doesn't look bad. We've had a little bit of a slowdown, but overall it’s looking pretty good. In particular, emerging market equities have rallied as well as companies in the developed world that are exposed to the emerging markets. We think that can go on a bit more. It won't be a straight line, of course, but we think the valuations are still attractive and that the growth stories are still there. In addition, there is still liquidity there and a lot of investor money, and that combination can drive prices up further.

Looking to the US, its trade deficit has been falling. What does this reflect?
The decline in the trade deficit is an interesting development because people have been very worried about it for many years. What is happening now is that with the US economy growing slower at a time when the rest of the world - especially Asia - is growing rapidly, a good combination has been created for bringing the deficit down. The slower growth of the US consumer keeps the import growth down, and that strong growth abroad helps to boost exports. And the dollar's weakness is also a bonus because it helps to make US production attractive and competitive, and that further keeps the trade deficit down.

Do you think that the dollar weakness is set to continue?
I think it will. We are not expecting the dollar to see a really big decline, but we do think that the dollar could trade toward the 1.45 mark against the euro. Against the yen, the dollar might see a bit of short-term strength. Although as we get into next year, the dollar could start to weaken against the yen again along with some of the other Asian currencies. So, for the time being it’s a picture of the dollar staying pretty soft, however, the risk of having it collapsing isn't that high.

If the dollar is going to stay weak, is gold a good alternative?
I think gold is beginning to look a little bit expensive. As far as one can measure, it is at a high-level by historic standards when adjusted for inflation. We have been seeing ranges above 730 dollars per troy ounce, and those ranges are more of a holding area rather than a buying one. We do think that some of the other precious metals, such as silver and platinum, can also offer significant value. Those investors looking at precious metals out of concern about the dollar should place less of a focus on gold and more of a focus on some of those other precious metals.

What is your forecast for the bond market?
Quite a question mark remains for longer-dated bonds in the 10-year area and we are not really advising investors to go there. Certainly as we look forward several months, and as the economic outlook becomes clearer, we think there might be some upward pressure on some of those longer yields. However, for the shorter-dated maturities of two to four years in many of the major markets we feel reasonably comfortable with investors having a kind of core holding. Again, we don't think by any means that investors should aggressively hold fixed income rather than equities. We think it is equities that will outperform, but it is good to have an element of fixed income in a portfolio as a balance and that is the maturity range to have.

Can you sum up what all this means for investors?
It is still a healthy environment for investors. We believe that equity portfolios can do pretty well and we believe the credit problems have not gone away, but we do believe they are beginning to subside. There may be one or two nasty announcements yet to surface, but we think the larger parts of these announcements are behind us. It is a world in which the global economy seems in reasonable balance. Of course, there are always risks, including the risk of inflation from that very, very rapid growth in Asia, or the risk of the US or European economies slowing down too much, but at this moment we think that those risks are containable. This leads us to this healthy view for the equity markets, although we are cautious on the dollar and not so excited by the fixed-income world at the moment.

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NAR: Recovery for Existing-Home Sales in 2008

A modest recovery for existing-home sales is expected in 2008 as the impact of the credit crunch subsides, while pending home sales indicate near-term stability, according to the latest forecast released here today at the National Association of Realtors® Conference & Expo.
Lawrence Yun, NAR chief economist, said the housing market will improve from a steady unleashing of pent-up demand, and from a wide abundance of safer mortgage products. “The level of pent-up demand reaching the market next year is a bit uncertain, and it is possible for even higher home sales activity than we’re forecasting if buyers regain their confidence about the long-term benefits of homeownership. Over the near term, home sales are likely to be fairly flat as the lingering impact of the credit crunch filters through the system through the end of the year.”
Existing-home sales are projected at 5.67 million this year, edging up to 5.69 million in 2008, in comparison with 6.48 million in 2006 which was the third highest year on record. Existing-home prices are expected to decline 1.7 percent to a median of $218,200 for all of this year and hold essentially even in 2008 at $218,300.
“Some markets are still going strong, such as Austin and Raleigh, while others are showing early signs of recovery, like Denver and Boston. However, a vast portion of the nation’s mid section is underpriced in relation to income, and prices in some markets could rise notably with good local job gains,” Yun said.
“Contrary to perceptions, conventional mortgages are widely available at favorable interest rates for the bulk of home buyers,” Yun said. “The pricing and availability of jumbo mortgages has improved, and FHA loans for home purchases – up 58 percent in the third quarter – are replacing subprime mortgages to serve the needs of low- and moderate-income buyers.”
“Home buyers in it for the long haul nearly always come out ahead in building wealth. Given the leverage in purchasing a home, the average return on a 5 percent downpayment over 10 years is usually three to five times greater than stock market returns,” he said. “When people compare investment returns, they often overlook the power of leverage in the housing market.”
Yun said a $10,000 downpayment on a median-priced home, at a typical appreciation rate of 5 percent, would be worth $110,000 after 10 years. That same amount invested in the stock market for the same amount of time, assuming 10 percent annual appreciation, would be worth $23,600. “That’s why housing is the best long-term investment most families ever make – the longer you own, the better your investment,” he said.

Selling your home during the holidays?

The holidays can be a great time of year to sell your home. While many real estate agents advocate waiting until February to put a house on the market, statistics from the North Alabama Multiple Listing Service (NALMLS) show November and December to be stronger selling months than January and February. In 2006, the average number of homes sold per month was 1,068. There was only a slight decrease in sales during the holidays, with 931 homes sold during November and 915 sold during December. The true decline in sales is actually during January and February, when people are taking time to recharge from the holidays. January 2006 saw a 31% decrease in sales, with 734 homes and February was just under December with 914 homes sold. Sales of existing homes accounted for 91.4% of sales in November and 91.8% of sales in December, as sales in new home construction.

The advantages of putting your house on the market during this time of year can oftentimes outweigh the disadvantages. During the holidays, sellers will not see as much traffic from people who are “just looking.” Buyers that are looking tend to be more serious, and they have more time to shop together, which is an advantage over other times of the year. Sellers may get dismayed easily, as a result of the slower traffic; however, they should keep in mind that it’s the quality of buyers versus the quantity. In addition, while families with children often prefer to wait until summer to move in order to avoid relocating during the school year, the break between semesters is a convenient time for moving as well. For both buyers and sellers, an advantage to holiday real estate transactions is that real estate agents, as well as lenders, home inspectors, appraisers, and title companies, have more time to spend with clients than at busier times of the year.

Homes that are decorated for the holidays can move buyers to look past any flaws in the home and imagine themselves living in the house. An important tip for sellers is to be tasteful in holiday decorations, as there is the potential for alienating buyers with overwhelming accessories.

The biggest problem sellers face during the holidays is going to be the stress of putting a house on the market, combined with the stress that normally accompanies this time of year. It is of the utmost importance that you keep your home immaculate so it shows well to prospective buyers. As a result of this stress, listing a home during the holidays is not for the faint of heart.

The important thing to remember when you are contemplating whether or not to sell your home is your motivation. If you need to move, regardless of the time of year, it’s always a good time to put your home on the market. If you are contemplating putting your home on the market “just to see what happens,” I would advocate that you wait until you are truly motivated.