Amid tightening credit and fears of mortgage un-availability, Northern Virginia homebuyers are feeling the crunch. Many remain uncertain about whether the house they purchase will hold up under the scrutiny of new pricing evaluations, as appraisals become an additional tool to help the money market hedge its risk.

While there is uncertainty in the country as a whole, and some parts of the country are seeing price declines, Alexandria City remains a good investment, according to statistics compiled by the Multiple Regional Information System. According to just-released data from the MRIS, second quarter housing activity saw homes in Alexandria City picking up in value during the second quarter, compared to the first. The year began with median home prices at $496,200. At the end of the second quarter the median price is at $524,800. Thats good news for sellers. But how about the buyers?

Housing data shows sale prices are slow to come down: Just ask any Old Town Realtor with listings how amenable their sellers are to lowering the price! In addition to the tightening credit standards being implemented and redefined, mortgage rates are inching upwards. So far this year, theyre up by about one percent over last year. That doesnt sound daunting, until you consider the growing values in well-situated homes those within easy commuting distance to the District and located close to metro transit access. 

Affordability looks to remain a challenge going forward for buyers, especially those who are trying to enter the housing market. Once you own a home, the value of that asset will carry you to your next one. If values are down for sales, you will realize the benefit when you purchase your replacement dwelling. But for those trying to enter the market, the conflicting information and oft-hyped media reports can be frightening, even though payroll reports show area salaries rising about four percent this year, according to the MRIS Economic Monitor.

The Big Picture
To gain a perspective of where you are in the scheme of things, it helps to take a look at the big economic picture and make your own judgment as to where you think it might go. There are certainly enough guesstimates by the experts.

The news stories on U.S. mortgage defaults in the sub-prime sector, occupied by homeowners who didnt have adequate income or credit standing to purchase their houses, except for the liberalized loan standards the mortgage industry developed to accommodate the buying fever that crested in 2005, is a good place to start. The hue and cry of losses and economic panic rests primarily with those who are holding the securitized paper these mortgages were bundled into.  Investors with an appetite for risk bought them. In this high-stakes wager game that include such complicated investment instruments as hedge funds and other securitized debt, the bet is on how long you can hold the paper and how high you can ride the market to maximize your profit.

When the bubble bursts, as it has in the sub-prime mortgage market, with homeowners defaulting on debt, these losses that were originally spread out to minimize overall risk can add up depending upon how deep the investment is. Thats where we are now. The thought of being able to refinance or sell a home at a 20 percent-plus markup to cover debt a homeowner cant pay is no longer on the table. The only option is to liquidate the asset, or foreclose, and that leaves the investors holding the tab. It also leaves the unwitting homeowner out of a house in which to live.

Northern Virginia Market 
Where do the solutions lie, and where do home sellers and buyers interests intersect with those of investors? They join in the available supply of mortgage money. When available money is tight, interest rates rise. If there is not sufficient liquidity in the money markets to fund home sales, the defaulted homeowner has little chance of selling a house to a market in which money is tight and interest rates higher than when he/she bought the house. And, when the cost of mortgage money rises, home prices usually drop. The drop in home prices amid high interest rates can be devastating to those trying to extract themselves from carrying costs that are too high to pay. Hence, the foreclosures increase, the mortgage banks take a hit in their asset base because they are holding inventory worth less than what they loaned against, and the end trail leads to the investors who bought the paper with the understanding that there was profit to be had over the long term. Of course, the higher the risk the paper carries, the greater rate of return, so risk-takers are the primary losers in this scenario. 

We in Alexandria City are unlikely to feel the level of heat some segments of the national housing market will experience going forward, for we are at the beginning of the end and not the end of the beginning in this meltdown. However, we are unlikely to see a widespread impact beyond the cost of mortgage money overall. We have a still-booming economy with sustained job growth. nemployment in Alexandria City is at 2.2%, and the job market continues to expand.  What we, like the investors and mortgage banks, need to watch closely is quantifying risk in real terms and behaving responsibly by taking on a mortgage with fixed terms we understand and on a loan we can presently afford. It isnt the money that is the problem; it is the behavior with money at issue here. Sensible decisions will bring greater stability for families buying homes, and for the market as a whole, if we realize that the silly season of unbridled upward valuations is over, for the seller and buyer as well.

Jeni Upchurch is a former Assistant Secretary, U.S. Department of Housing and Urban Development and now a full-time Realtor with McEnearney Associates in Old Town.