I wrote a few months ago that 2004 is the magic number for Loudoun. If you bought during or before 2004 and you need to sell your house now, you should still be able to walk away with a profit. Those of you (and by that, I also mean me) who bought in 2005 or later might want to sit tight for another year or so.
But for some homeowners, waiting another year could be problematic. Why? Because so many buyers in 2005 and beyond bought their homes at the peak of the market using a 3/1 ARM, and their mortgage clocks are running out. And even though mortgage rates are still very low, they are high enough now that those buyers might not be able to afford the reset mortgage payments.
It took me a while to piece this together. To be truthful, I can’t take credit for recognizing this trend, because a friend actually brought it to my attention. She had some friends who were putting their house up for sale after living there less than 3 years because they had decided the house was “just too big”. My friend laughed at this and said, “Right. I’m sure it has nothing to do with the fact that her 3/1 ARM is running out.” I didn’t think much about it at the time, and filed it away in the recesses of my overtired brain. Last month, however, I noticed that 7 houses on one street in my neighborhood came on the market on the same day. It was odd enough that it caught my attention, and when I did a past sales search, there it was: Every single one of those homes had been bought in mid-to late-2005. What was also noteworthy was that the list price of each home was way too high (by about $100,000), which usually means that the seller is trying to recoup at least some of the original sales price. Within weeks, each of the homes had gone into short sale.
What does this mean for Loudoun’s real estate market? I stand by what I’ve said recently, that there are definite signs the market is stabilizing and properties are starting to move again. But I also think that we won’t see a real shift until the middle of next year, when we’re another year out from the 2005 peak and the number of resetting 3/1 ARMs starts to dwindle. One compounding factor is the sense that the Fed may raise rates early next year, which might put a damper on a burgeoning real estate recovery. Let’s just hope that any increase isn’t significant enough to scare off those buyers who have been biding their time, waiting for the right time to invest in a home in Loudoun County.