When Rich Murphy's employer transferred him to the Richmond area from Atlanta, he faced a tough decision about housing.
Until his home in Georgia sold, he and his family could rent here and potentially miss out on a rebound in local real-estate values. Or they could buy at today's lower prices under the specter of potentially carrying two mortgages for an indefinite period.
"It was a gamble any way you go," says Murphy, a regional sales manager for the Lincoln Financial Group.
With home costs this year down 21 percent nationally from their peak in July 2006, according to housing data company First American CoreLogic, prices are the lowest they have been in more than five years.
That may not be the case for long. Lisa Noon of the Virginia Association of Realtors says sales of homes in the state are coming back, according to preliminary second-quarter figures, and she believes that the bottom of the housing market is behind us.
Great bargains can still be found in specific instances, but buyers should not have unrealistic expectations on price, says Paul Gee, an associate broker at Joyner Fine Properties in Richmond who helped the Murphys find a home. Two buyers he worked with this year "got a steal," but that was not the case in about a dozen other sales.
Some sweet deals may require the involvement of a third party. In a short sale, for instance, the seller and the lender must agree upon a price less than the amount owed on the home. Foreclosure auctions can also present bargains, but such homes are usually presented "as-is" and may not have been properly maintained by owners in financial difficulty.
Richmond Realtor Claire Shaffner says the allure of a foreclosure sale can be instant equity. She cited the recent case of a Church Hill home: "The appraisal came in $77,000 more than the list price, and only $10,000 in work needed to be done."
Virginia had the 14th-highest rate of foreclosure filings in the nation for the first half of this year, according to Realty-
Trac, a company that tracks and markets foreclosures.
Even for traditional home sales, the timing looks attractive.
"The Richmond market probably has never been in a better position for buyers," says Scott Shaheen, past president of the Richmond Association of Realtors and a regional vice president at Long & Foster. "The selection is fantastic, the interest rate is fantastic. And prices are better than before the housing boom."
Laura Lafayette, chief executive officer of the region's Realtors group, notes that for the first seven months of the year, the average sale price of a single-family home here was $236,247, nearly 14 percent lower than the same period last year.
"That doesn't mean that housing has devalued," she cautions. So far this year, eight in every 10 sales in the region have been for homes costing $300,000 or less. With fewer sales at the higher values, average prices fell.
"What makes this a buyer's market is inventory," Lafayette says. In the housing- boom years of 2005 and 2006, this region had a four-month supply of homes for sale. In June, it was a 13-month supply.
"I hope September and October will be pretty good" sales months, Lafayette says. "November and December, people turn their attention to different things" than home buying. "This year, the tax credit may sustain the market more than we've seen in recent years."
The tax credit, for 10 percent of a property's cost up to $8,000, is available to first-time buyers and people who have not owned a home in the past three years, if they buy before Dec. 1.
Air Force veteran Faye Carter Allen, who says she rented the same studio apartment for 10 years, found a creative use for the tax credit. She fell in love with a condominium at Ironhouse Place on West Broad Street in Richmond. The one-bedroom, one-bath condo had closets and a washer and dryer that her apartment did not, but it was the kitchen's stainless-steel appliances, dishwasher and double sink that sold her on the place.
"It's been a roller coaster," Allen said in July on the first night in her new home. The lender that had preapproved her declined to lend the amount she needed. Then the property was appraised for less than the price she offered. Those issues were resolved.
"We made an offer on the condo conditional on her getting out of the lease," explains Shaffner, Allen's Realtor, but the landlord said he would enforce the contract. The solution was to amend this year's tax return to file for the tax credit, and use those funds to pay off the lease.
Rich Murphy and his wife, Penny, made offers on about 10 Richmond-area homes. On four of them, the bid was within 10 percent to 15 percent of the asking price, he says.
"Some of the houses we looked at are still on the market and now are $15,000 below what we offered [and what they rejected] in January," Murphy says. "A couple sellers came back to [our agent] and asked if we were still interested."
The Murphys even considered a short sale for a time but backed away because of uncertainty over when the lender would act on an offer.
The couple and their children, Sophie, 4, and Sean, 2, now live in a four-bedroom home in The Highlands near Chester. The 3,600-square-foot house, with a half basement and finished attic, is one-third larger than their Georgia home, but the 1-acre lot is smaller.
The purchase price of $360,000 was $60,000 less than the house's original listing. The home was appraised for $30,000 more than the sales price.
"It's not like I just made a killing," Murphy adds quickly. "Home prices are down 30 percent in Atlanta, so it has a way of equalizing."
The Murphys' house in McDonough, about 20 miles south of Atlanta's airport, has gone through a few price cuts of its own and was listed in July for $209,000 — about the same price the family paid for it nine years ago. They have rejected an offer of $155,000.
"What's killing me is foreclosures," Murphy says, adding that Atlanta is one of the 10 hardest-hit housing markets in the nation when it comes to foreclosures. "There's one down the street from me — all brick and it has a basement [while] mine doesn't — and it sold for $185,000."
Murphy reflects on other changes he has seen in real estate:
"In 2000, I put 20 percent down and got a 30-year fixed mortgage for my house in Atlanta. I didn't think to go outside the box on creative underwriting. We got a line of credit as a backstop … not as a cash machine. That approach saved me and allowed me to do what I did here.
"I went through almost the exact same situation this time as I did in 2000," Murphy says. "I proved I have a job, the assets I claimed and that I could afford the payment. Things have come full circle."
Housing markets are distinct, sometimes from neighborhood to neighborhood. For instance, the average sale price of a single-family home in Chesterfield County from January to June was $253,565, down 9.1 percent from the same period last year. In Goochland County, the average price was $448,722 this year, off nearly 17 percent from the first half of 2008. In Powhatan County, home prices average more than 23 percent lower than last year, but in Charles City County, the 14 homes that have sold so far this year fetched an average price nearly $10,000 higher than the 10 sales in the first half of 2008.
Here are the statewide rankings of the major Richmond-area localities by the number of foreclosure filings recorded from January to June of this year. Figures in parentheses are the comparable figures for the first six months of 2008.
22. City of Richmond, 820 (808) properties with filings, or one in every 115 housing units (The Virginia average is also one filing for every 115 units, for a total of more than 28,000 homes.)
24. Chesterfield County, 981 (837) properties, or one in every 118
44. Henrico County, 676 (554) properties, or one in every 186
52. Hanover County, 166 (124) properties, or one in every 226
Short Sales May OfferSolution for Troubled Properties
If you paid $220,000 for a house, and you owe $200,000, but the market price is $190,000 and you lost your job, what do you do?
Hint: You don't want the lender to foreclose because it ruins your credit.
The answer may be a short sale, which does not harm your credit, according to Claire Shaffner, a Realtor at RE/MAX Commonwealth in Richmond. In such deals, the lender has a say in the sale price because it is less than the amount due on the loan.
Shaffner is one of about 60 certified distressed-property experts in Central Virginia who have learned how to help negotiate resolutions when homeowners are upside down on a loan they must get out of. The rate of borrowers delinquent on their mortgages has been growing, especially among those with weaker credit.
Real-estate data company First American CoreLogic reports that the percentage of mortgages 90 or more days late in the greater Richmond area in June was 4.3 percent, up from 2.3 percent in June 2008.
"We're going to see more of this," Shaffner predicts.
For some, what was once affordable is no longer after layoffs, pay cuts and shorter work weeks.
"We're seeing many mortgage companies be very responsive in modifying adjustable-rate mortgages to something borrowers can afford," says Andrew Grasso with ClearPoint, a nonprofit credit-counseling agency based in Richmond.
Alicia O'Brien, president of the Richmond Mortgage Bankers Association, says many homeowners who are in financial difficulty had put zero percent down on their homes, so they have no equity to help them refinance or get out of the loans. "They're not out anything because they didn't invest, so they walk away."
That is why mortgages today require a down payment, says O'Brien, who is also a senior loan officer at Prosperity Mortgage.
In cases where homeowners do not want to stay in the house, short sales are an option, Grasso says. In a short-sale listing, a certified distressed- property expert can act on the seller's behalf with the lender and is the liaison for all parties in a sale.
Shaffner says the mortgage crisis has "totally overwhelmed" banks and their ability to handle distressed properties. But she says banks stand to lose as much as $100,000 in a foreclosure because they must take over ownership responsibilities, while a short sale might result in a loss of $20,000 or $40,000. However, lenders' slow response to potential short sales can be a deterrent to homebuyers, she says.
Grasso reminds consumers to reach out as soon as they fall even a day behind on a payment. "Be proactive," he says.