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Where did 2003 go? It seems almost yesterday that I was making my predictions for this year, and now its time once more to look to the future.
The real estate boom continued throughout this past year, although it appears that it slowed down somewhat at year's end. Interest rates remained very low, allowing more consumers to buy their first home -- albeit at very high prices. But at least most of the crazy bidding wars have ceased creating havoc and confusion to both real estate professionals as well as the general consuming public.
Although mortgage interest rates are still very low, and the stock market appears to be making a comeback, consumer confidence in the economy is still shaky. Yes, we have captured Saddam Hussein, but the terrorist alert level has just been raised. The unemployment figures are still too high, and it is not yet clear whether the Christmas shopping sales will meet the expectations -- and needs -- of the merchant community. And more dollars are flowing out of the United States than coming back in.
There were a number of factors which created the past two-three year boom in real estate. The stock market appeared to have bottomed out, and the 1997 Taxpayer Relief Act allowed many homeowners to sell their house without having to pay anything to the IRS by way of capital gains tax. And the "up to $5,000 tax credit" enacted by Congress for first time home buyers in the District of Columbia contributed greatly to the increased interest in D.C. real estate.
How will 2004 fare?
First let's look at mortgage interest rates. I seriously doubt that they will go much lower. While they will continue to hover around six percent until at least April or May of 2004 -- which is still a very good rate for most home buyers -- I predict that sometime before this coming summer, rates will start moving up slowly. This means that refinancing – while still attractive – will start to slow down. And the seller's market which existed over the past few years, is -- for all practical purposes -- over. While I do not believe it will become a buyer's market, perhaps the best description would be to call it a balanced market.
Condominium and cooperative apartment sales have been very strong these past few years. However, there appears to be a glut on the market; many developers who originally planned to build rental properties are now switching to condominium unit sales. And many American consumers are not happy with community association life. I receive numerous letters each month from disgruntled owners complaining about their neighbors, their boards of directors and their restrictive covenants. We have all heard numerous stories about the excesses taken by boards of directors in such areas as covenant enforcement, rules and regulations and assessment collections.
Community association leaders -- such as the Community Association Institute -- have long attempted to develop a positive campaign to correct this misapprehension of community association life. Additionally, more and more community associations are starting to recognize the impact of their activities, and are beginning to mandate better procedures, including such things as due process hearings, mandatory dispute resolution, and open meetings and open elections.
Community associations finally understand that unless they begin to address the serious problem of the number of investor owners within their community, buyers will be unable to obtain mortgage loans from the secondary mortgage market and owners will be unable to refinance. The secondary mortgage market (notably Fannie Mae and Freddie Mac) have imposed restrictions on the number of investor units that will be permitted to exist within an association; if the association exceeds those guidelines, mortgage financing will be difficult to obtain.
Last year, one of the hot topics dealt with predatory lending practices. Too many people are being preyed upon by unscrupulous lenders -- lenders whose prime objective is to milk the unsuspecting homeowner to such an extent that their house ultimately has to be sold at a foreclosure sale -- and then the process starts all over again with the new buyer.
Such unconscionable practices as flipping, multiple refinancings, home improvement scams and excessively high settlement and mortgage broker fees were the focus of attention last year. However, while the predators continue, it appears that this is no longer a hot-button topic. Next year is a political year, and Iraq, terrorism, unemployment and prescription drugs will take the spotlight away from these lending practices.
One issue that remains on my "wish list” is about the massive amount of paperwork needed to buy or refinance a single-family house. When I first started in the real estate business many years ago, the borrower signed only two or three legal documents -- a promissory note, a deed of trust (mortgage) and a settlement statement. Now, in addition to the mortgage documents, lenders require such miscellaneous documents as: name affidavit, clerical error affidavit, affidavit of debts and liens, disclosure statements, flood hazard insurance statement, power of attorney, etc. While relief in this area is desperately needed, and while it appeared for a time this year that high level officials at the Department of Housing and Urban Development (HUD) were concerned about these issues, the recent departure of the Secretary of Housing and Urban Development may mean that all settlement reforms will once again be shelved.
2004 is now upon us. Happy New Year to all and to all a good rate.
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