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A year ago, doomsayers were forecasting that rising housing values, particularly in rapidly appreciating markets like Washington, New York, and California, were an expanding bubble on the verge of bursting. “Don’t get caught in the housing hysteria and overpay,” they warned, and pointed to the rising interest rates as proof positive that the market was about to take a tumble. It’s true that interest rates appear, at least for the time being, to have stopped plummeting. Yet even though the rates have risen recently, they remain at extraordinarily low levels. Far from putting the brakes on housing sales, the higher rates have actually spurred the market to an all-time fever pitch. Anxious buyers are racing to open houses to find their dream home before the rates go “too high” and price them out of the market. So, a year later, what has changed? Attitude. The same buyers who a year ago would have seriously considered exchanging their first-born child for a 7 percent interest rate on a 30-year note are dismayed now to be offered loan programs with interest rates of 6 percent or higher. Even with interest rates creeping back toward 6 percent, the market remains very strong. For the short term, the market is drawing out buyers who were waiting for the lowest possible rate. Fearing that the rates may not go any lower, these buyers are jumping in feet first. Properly priced and properly marketed homes continue to receive multiple offers and sell for far more than their list price — and substantially beyond what other similar properties have sold for just weeks (or even days) before. The last three properties I sold — all condos — received eight offers, four offers, and 10 offers, respectively. Despite being priced aggressively, all sold for well in excess of their list price. The market is no less hot for single-family homes. Indeed, the house I just purchased in Cleveland Park as my own personal residence sold for more than $100,000 above the asking price. My wife and I were one of four couples to bid on the property, which by the way is in need of major renovation. REMEMBER LAST YEAR? Let’s not forget that the market was booming in 2002 when rates hovered closer to 7 percent. With 2002 as a guide, there is no reason not to expect healthy growth in housing values for next year. For the District, in particular, the mid-range forecast looks positive because of the tax incentives for buying property within the city limits. Currently, first-time buyers of D.C. properties are eligible for a $5,000 federal income tax credit — that’s not a deduction, it’s an actual credit of $5,000. Also, buyers of moderate income who purchase a property valued at less than $250,000 can save nearly $10,000 in taxes over their first five years of ownership, thanks to the District’s Tax Abatement Program. Predicting what’s going to happen to real estate beyond the next year is less reliable than reading tea leaves, but the general truisms apply. If the job market stays strong in Washington and the interest rates don’t skyrocket to the double-digit, credit card-like rates of the early 1980s (when they reached 18 percent), we will continue to see solid, if not stratospheric, growth in the residential real estate market. In fact, buyers have one benefit from the modestly rising interest rate: Now that the refinancing boom is finally tapering off, it’s getting easier to process a mortgage and settle within 14 days of the offer being accepted. In the first half of this year, many buyers couldn’t even get loan officers to return their calls; the banks were just so swamped with owners seeking to refinance their existing mortgages. But the real sign of the slowdown is at the settlement companies. The president of one established company recently told me that from 20 settlements a day during the peak of the refinancing boom, his company is now scheduling just two new settlements a day. GUIDELINES FOR BUYERS So, given today’s financial climate, how should buyers approach the market? What I always tell buyers is this: If you are intending to stay in the area for at least the next three years, you should almost certainly buy a home. With all the costs to acquire property and sell it, you need to accumulate enough equity to make purchasing a reasonable choice. In a “normal” market with annual appreciation of about 3 percent, it will take about three years to cover these transaction costs. Therefore, if you are planning to stay for less than three years, renting generally makes more sense, especially in this weak rental market. Then there’s the oldest rule in real estate: location, location, location.Values in the city, especially in Northwest and on Capitol Hill, are climbing faster than outlying areas. If you wish to live in the suburbs, buy as close to the city as you can afford. “Inside the Beltway” is a positive expression when you are talking about real estate! Another major factor that drives up the value of properties is being close to Metrorail. Proximity to convenient shopping, entertainment, and commuting routes is always important to those looking for a home. It is important to try to buy a property that is typical for a particular locale. Buying a condominium in Loudon County, for example, doesn’t make any sense because the typical property there is a single-family detached home. However, buying a condo in Dupont Circle is a very reasonable choice because it is the most affordable type of property that can be purchased in that neighborhood. Buying real estate is very similar to buying stocks: You can choose to go the “blue chip” route or you can buy riskier “growth opportunities.” Stable, slow-growth areas include Georgetown, Dupont Circle, and Foggy Bottom; North Arlington, McLean, and Great Falls in Virginia; and Bethesda/Chevy Chase in Maryland. For longer-term investments, look for gentrifying areas of the city, such as Mount Vernon Square, LeDroit, or Eckington, all Northwest neighborhoods. WOULD-BE INVESTORS If you are looking to purchase investment property, be prepared for a long-term investment. For small-time investment buyers, the current market is a double whammy. It’s difficult to buy investment properties at affordable prices, and even when the elusive bargain property can be found, it’s hard to find tenants because there are so many rentals to choose from. Without a tenant, it’s difficult to cover the costs of holding the property. The only saving grace for the small investor is that property values are appreciating so quickly that even small monthly losses on rental income can be overcome by the property’s increased market value. Virginia is still the best jurisdiction in which to be a landlord. The laws there are far and away the most friendly for landlords. The District can offer excellent rental opportunities, but you must make sure you comply with the very arduous regulations the city requires. It’s no coincidence that all of the D.C. attorneys I know who specialize in landlord-tenant law own investment properties in Virginia. Buying distressed properties, fixing them up, and reselling is always an excellent way of making money in real estate. Be very careful, though, if you decide to try your hand at it. Most would-be real estate moguls don’t spend the time it takes to learn what repairs cost, don’t have reliable contractors to do the work, and end up over-investing in their projects. HIRE A REALTOR Whether you’re buying or selling, find a professional full-time Realtor (a member of the National Association of Realtors) with whom to work. Those who don’t see the value in a hiring a Realtor haven’t met the right one. It is unfortunate that in boom times, the real estate profession — much like the lending industry or any other profession, for that matter — is flooded with individuals looking to cash in on a seemingly “easy” and profitable career. A bad experience with one agent has led some buyers to “play the field,” leading several Realtors to believe that they are working with them exclusively. But commitment works both ways. If you aren’t committed to the agent you are working with, he or she won’t be committed to helping you find a home. Search for the right Realtor, don’t just settle for the first one you meet. Interview several. Ask them not only how long they’ve been practicing real estate full-time, but what their credentials are. What additional real estate-related education have they pursued? Are they a graduate of the Real Estate Institute? Fewer than 10 percent of Realtors in the metro area have a GRI, a designation from the National Association of Realtors. Have they been elected to any professional boards? What have they sold recently? How many clients do they work with at any given time? How do they keep in contact with their clients? How often have they prevailed in multiple contract situations? Ask them to share their recent experiences in bidding wars. Particularly in a sellers’ market as competitive as this one is, having a professional Realtor who has long experience in negotiating contracts will help your bid prevail. A Realtor should ask you to sign a buyer-broker agreement before they begin work on your behalf. It indicates not only that they take their job seriously, but also that they intend to approach your home search in a professional manner. Buying a home is about so much more than what the interest rates are on a given day. If you find your dream home, don’t be discouraged by the number of other buyers competing for it or by a modest rise in interest rates. The nearly 100-year-old house that I purchased, which hadn’t been on the market in roughly 60 years, wasn’t going to wait around for the interest rates to sink. A home brings all sorts of rewards, financial and personal. Joseph Himali, GRI, is a Realtor (licensed in the District, Maryland, and Virginia) with Randall Hagner Ltd. He was a 2002 winner of the Greater Capital Area Association of Realtors Platinum Award (sales in excess of $10 million) and has sales of more than $20 million thus far this year. He serves on GCAAR’s Grievance Committee and the Washington, D.C., Association of Realtors’ board of directors. He can be reached at (202) 669-4656 or at www.BestAddress.com.

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