Ed Schneider – Washington DC Real Estate Specialist

Like many of you, I've been finding some buyers to be pulling back from their searches because of their perceptions of this financial environment, so when I received the email below, I developed an answer that I hope will encourage him.

> Ed, thanks for all the information you're sending. That listing is
> indeed great, and in normal circumstances I'd jump at it. But you saw
> the market again this week. Crazy is no longer an apt description, as
> crazy things are more predictable. And when Greenspan is shell-shocked,
> well, who am I to be confident? Obviously this can affect everything,
> from interest rates to prices to... oh, the list can go on. Anyway, I
> think I should continue to play this cool for a while, as the stakes are
> too high. The houses are great, the opportunity is probably beginning to
> be real, but fear is cheap for the little guy. Thanks, Dave

Hi, Dave,

I received your email a couple of days ago and have been pondering exactly how to respond ever since. So I did some research and put some thought into the matter. Here’ my response:

Firstly, I want you to know I feel your pain. This financial situation is quite unnerving and it is not for me, of course, to suggest what you should do with your money in these precarious times. However, there are some positive things you might want to consider when it comes to buying real estate at this moment.

Home prices in DC appear to have bottomed out. (See the September Real Estate Report pasted below my signature.) Though prices are low, as we approach Thanksgiving and Christmas, the slowest home sale period of the year, many home sellers see what you’re seeing and many are becoming desperate. I’m not suggesting that their desperation should become your windfall, but the point is that there are good deals to be had now and over the next few weeks and months.

As the old adage says, buy when prices are low.

The single largest expense in purchasing a home these days is the cost of a mortgage. According to Freddie Mac's nationwide survey, a week after posting the biggest one week increase since April 1987, mortgage rates staged the largest one week drop since May 1995, last week hitting to 5-week low. The company reported a reduction in the average interest on a 30-year fixed loan to 6.04 percent from 6.46 percent last week and a slide in the 15-year fixed rate to 5.72 percent from 6.14 percent. Interest on adjustable-rate mortgages slipped to 6.06 percent from 6.14 percent for five-year ARMs. There are tentative signs that the credit freeze is beginning to thaw, as evidenced by a drop in 1-month and 3-month LIBOR of over 100 basis points in the past week. This is what sparked this reversal in mortgage rates. And today, the Federal Reserve reduced their benchmark lending rate by one-half of a percent. How that translates into mortgage rates has yet to be determined.

These are still historically low rates hovering around 6 percent. (My first home purchase was at 8.5 percent many years ago.) If you hold off for a few months, we have no idea what the rates will be.

So despite these financial market fluctuations, buying real estate now is still a good investment. Historically on average, values increase 4 to 6 percent per year, though rises in values from 1999 to 2006 in this market were significantly and unusually higher.

And real estate provides more advantages than stocks: You get to live, sleep and eat in a home.

Try having friends over for dinner on your stock certificate.

If you have some time one afternoon next week, perhaps we can sit down over some coffee and talk about this a bit further. Meanwhile, feel free to call or email me with your thoughts and concerns. I look forward to hearing from you.

Sincerely,
Ed

This past Sunday, I held one of my colleague Pat Kennedy's listings open. It is a lovely and spacious 1300 sf 2-BR in Adams Morgan's Beverly Court, a classic 1915 building. It has some beautiful traditional details, yet a well-flowing, modern open plan.Plus some of the most beautiful honey pine floors you're likely to find anywhere. Here are a couple of pix:


I'd been in this apartment once before, just about 30 years ago when the building first converted to cooperative. I'd been in the apartment because after the divorce my ex-wife had purchased it. She moved long ago, and the place has had several owners and upgrades.

The current owner is selling because just this week she married the man of her dreams and the two are looking for a house of their dreams in the same trendy neighborhood. The owner is a reporter for the Washington Post. My present, lovely wife also worked at the Post for for quite a few years. Though she and the owner worked in different sections of the paper, they know each other.

And when my wife took a year off to pursue a fellowship she'd won, among the people she'd interviewed was the this owner's new, wonderful husband, a college professor and author of a book in my wife's field.

This was a concurrence of unusual coincidents, wouldn't you say?

When I was a young boy, I remember reading a poignant book titled “A Tree Grows in Brooklyn” by Betty Smith. It is the story of a young girl struggling against poverty in the early decades of the 20th Century. As a boy growing up in Brooklyn in a family of modest means myself, I felt a connection with its heroine.

The story’s title tree is an ailanthus altissima. It’s an opportunistic maverick of a plant that flourishes in the most distressed of areas and it serves as a metaphor for the heroine’s aspirations and her plight.

There's a tree that grows in Brooklyn. Some people call it the Tree of Heaven. No matter where its seed falls, it makes a tree which struggles to reach the sky. It grows in boarded up lots and out of neglected rubbish heaps. It grows up out of cellar gratings. It is the only tree that grows out of cement. It grows lushly... survives without sun, water, and seemingly earth. —A Tree Grows in Brooklyn, Introduction

This Tree of Heaven, the ailanthus, is a popular ornamental tree in China where it was purported to hold the cure to ailments ranging from mental illness to balding. It was brought to Europe in the 1740s and twenty years later, to the United States.

The ailanthus is a survivor. It is incredibly tolerant of pollution. Its leaves absorb sulfur dioxide. It withstands cement dust and resists ozone exposure. It can live with very low phosphorus levels and very high salinity. It can tolerate an acidity approximately equivalent to that of tomato juice. Its ability to store water in its root system makes it tolerant of drought. It cultivates opportunistically, populating areas where few other trees can manage. It spreads aggressively both by seeds and root sprouts.

And it is not a good neighbor. It produces allelopathic chemicals, toxins that inhibit other plants’ growth, enabling it to form dense thickets along highways and in abandoned lots. It has become an invasive species with an ability to rapidly colonize disturbed areas and suppress competition. Eradication is difficult and time-consuming since it re-sprouts vigorously when cut. And its roots are capable of causing damage to subterranean sewers and pipes.

It is a persistent, insidious, noxious weed.

For years, we’ve had such a tree anchoring the front corner of our property. Our Ailanthus was perhaps 60 feet high when we moved in and over the years it grew to nearly 100. It has always been the last tree to leaf out and the first to drop its foliage before summer ended. All through spring, we’d find ourselves plucking hundreds of Ailanthus sproutings poking from cracks and hiding beneath our bushes, sprouts that if left unchecked, would rapidly develop into grove of hideous trees from hell.

I’ve hated that damn tree for over 30 years.

Thanks to Hurricane Hanna, I no longer have to look at it.