Did Virginia make the top 15 list? Some surprises in the projected list of 15 hardest hit real estate markets over the next 5 years
It might surprise you to learn that over the past 5 years some parts of Northern Virginia have been lumped in with the “sand states”, i.e., those previously booming states with the biggest value bubbles and the hardest value crashes, including California, Florida, Arizona and Nevada. But rampant TARP money and cronyism seemed to liberate Northern Virginia from the sand state list for a season . . . until now. According to Business Insider, citing the Case-Shiller index, median incomes, real estate prices and relatively flat growth projections are all factors that have put Alexandria and other DC suburbs in the top 15 worst projected real estate markets for the next five years.
This type of information is crucial for Short Sale Negotiators to have at hand when trying to persuade that loan workout supervisor from that stubborn mortgage company to allow a substantial modification or short sale of a property in that area! The workout departments for lenders servicing those loans in especially depressed real estate markets are often nationally located and may not be aware of the nightmare recovery they can anticipate when foreclosing in such an area. Often the only feedback they may have as to relative losses/recoveries on delinquent loans is from a BPO (broker price opinion) which is usually rendered by an under-compensated realtor. Often the BPO is generated in limited time for limited compensation and becomes more focused on the tree rather than the forest. Providing comparable values from the past 6 months to a lender considering foreclosure may be helpful or, if it ignores big picture information or reliable future projections, it may lead the lender to incur much higher losses or longer REO holding periods than expected. Obviously, if the lender takes higher losses, the underwater homeowner will potentially face a bigger deficiency to defend.
The question for the upside down homeowner is whether to sell now or continue to deplete reserves and/or retirement funds to try to outlast the real estate recession. It has been a roll of the dice as to whether the positive tax consequences of the Bush era tax relief act would be re-enacted before they expire at the end of the year. Now with the Fiscal Cliff negotiations stalemated, it appears more likely that short sale sellers will find their forgiven principal debt taxable in 2013. But wait! Don’t let that spectre of a huge tax bill close your mind to selling as soon as possible if your house payment is becoming too great a burden, other tax consequences could make things worse! Several compromise plans to reach middle ground on a path to chip away at the national deficit include provisions to eliminate or reduce and cap income tax deductions. Most of those plans affect upper income wage earners and higher end home sellers disproportionately. This means that fewer “move up” buyers, who use calculations on interest deductions to help determine how much home they can afford, will be forced to buy homes with lower mortgages. For an excellent analysis of the impact of capping the mortgage interest deductions, I recommend you read an article in the LA Times by real estate expert, Ken Harney, which predicts that capping mortgage interest deductions would cause home values to drop, especially in mid to higher priced homes.