Melissa Savenko's Richmond Real Estate Review

Top Ten January Home Sales Figures - What Does It Mean?

In yesterday's Home & Garden section, the Richmond Times-Dispatch published its monthly Top Ten List of the most expensive residential real estate transactions for the month of January.  The most expensive home sold for $1.65M, followed by a home that sold for $1.4M.  After Nos. 1 and 2 there is a pretty steep price drop-off in price, almost $300,000, to sales Nos. 3 and 4 at $1.15M and $1.015M, respectively.  But then the next highest priced home sales, Nos. 5 through 10, clock in at $800,000-$650,000.

Let me just say for the record that I think ALL of these prices are lots and lots of money.  And I am unlikely to be able to buy anything in any of these price ranges unless and until (i) my rich uncle gets out of the poor house; (ii) I win the lottery; or (iii) the real estate market comes back with a vengeance.  [NOTE:  As to No. (iii), I think it's more likely that I win the lottery, or discover a long-lost unknown and very wealthy relative who decides to leave me his or her fortune]. So please do not take the following analysis and opinion to be implying in any way that a $650,000 home is inexpensive.

BUT....that being said, it used to be that the least expensive of the Top 10 real estate transactions each month would be $875,000+.  So  what does the change mean?

I have a couple of theories.  First, with two transactions well above $1M, at $1.65M and $1.4M, I think you can conclude there are still some people doing extremely well.  With economic stability and financial resources, some folks can take advantage of "low" (relatively speaking) prices and low interest rates to buy move-up houses.

Second, with two sales in the $1M range, there are still people doing very well, well enough to move up into an expensive home.  Again, these people have the opportunity to take advantage of low prices and historically low interest rates.

BUT, the drop off in sales price to $800,000-$650,000 for the last five highest priced January 2010 transactions is concerning.  Why?  I think it's an indication of weakness in the "move-up" housing market.  If someone buys a $650,000 house, they are likely to have sold a $400,000+ house.  That buyer of the $400,000+ home may have sold a $250,000 home.  And that $250,000 home might have been purchased by a first time buyer.  The higher priced sales are evidence of sales velocity at the lower end of the market.  It's evidence of the "trade up" effect in the residential real estate market. 

We are in the "perfect storm" environment for buyers, with low prices, low interest rates, a larger-than-average inventory of homes to choose from, and consequently more buyer leverage to extract favorable terms.  We are unlikely to see better conditions for buyers in our lifetime.  But it doesn't seem that many buyers are choosing to move up.  And those that are, well, the price ranges of move-up homes are lower than we have typically seen for the highest priced homes.  That indicates to me some stagnation in the middle ranges of the housing market.  Extremely high priced homes, a fairly small segment of the market in any economy, are still selling.  All the sales data indicates the lower end of the market, the first time buyer range, which runs up to about $250,000 depending on area, is moving well.  But the middle of the market doesn't seem to be moving much at all. 

Why should anyone care?  Residential home sales drive economic activity across the broader market as people shop for furniture, hire moving companies, hire contractors, do home improvement projects, etc.  Stagnation in the middle of the residential real estate market means less activity in the broader economy.  I think people have decided to be more conservative, to either stay put, or downsize, or buy a smaller, more modest replacement home than they would have in the past.  Some people may decide not to buy AT ALL, and are renting or moving in with relatives or friends.  That was not something we saw in the go-go days of the real estate rush, when everything was "bigger, faster, larger, MORE!"

The verdict?  I hope I'm wrong, but I think there are tough roads ahead until unemployment - and underemployment - figures start to come down substantially.  Fasten your seat belts, people, it's going to be a bumpy ride. 

BIG News - The Reynolds North Plant Is Under Contract - Canal Walk Development in the Future?

BIG real estate news today.  Two local developers, WVS and Fountainhead Development, have the former Reynolds Metal manufacturing facility north of the river, along 10th and Canal, under contract.  WVS developed Rockett's Landing.  Fountainhead Development has been instrumental in developing large swaths of Historic Manchester.  The marriage of this high-rise construction + adaptive reuse/historic preservation expertise could be a marriage made in heaven.  As with any development, we'll just have to wait and see the final plans, although the preliminary rhetoric all sounds good.  I'm just glad the developers are local.

Now, my little adaptive reuse and tax credit/enterprise zone lovin' heart would be happy and complete if the Reynolds Metals SOUTH Plant, located across the river near the Suntrust Headquarters, could be developed into something amazing.  A baseball stadium south of the river anyone?

Historic Preservation + LEED Certification - It's Been Done Before - Moseley Architects and 626 E. Broad Street

I meant to blog on this the day the BizSense article was posted, but it's been a bit crazy between work and the snow.  So I admit I dropped the ball for a few days.  However, I think it's still a worthwhile and timely subject.

BizSense posted an article about David Gammino, a developer in town, who is beginning his second project that will qualify for both historic tax credits and LEED certification.  Historic tax credits are incentives to owners or developers to renovate eligible structures in a historically sensitive and appropriate way.  These tax credits can be lucrative, providing between 20%-45% of the eligible renovation budget back as a direct bottom line credit on one's federal and/or state tax return.  They can also make the difference between a project generating enough margin to be worthwhile for an owner or developer.  Historic renovation tax credits have been used in the Greater Richmond area a great bit, and have resulted in some wonderful renovation projects that have saved, restored, or adapted historic buildings that otherwise might have been at risk.  See examples Movieland, Miller & Rhoads.

LEED certification means a building meets certain specific design and materials requirements that make it "green."  "LEED" stands for "Leadership in Energy and Environmental Design" and is an internationally recognized rating and certification system developed by the U.S. Green Building Council ("USGBC"). For LEED certification, building materials must be local and building design and execution must include specific energy efficiency measures.There are levels of LEED certification - silver, gold, platinum.  

While I absolutely agree that Mr. Gammino's recent projects are indeed laudable for using both of these programs - an exercise that can be more than a bit difficult and adds expense and time - I would like to gently point out to Richmond BizSense that there are already TWO significant projects in the City of Richmond that used both historic tax credits and received LEED certification.

626 E. Broad Street, the new home of University of Richmond Downtown, received silver LEED certification.  The headquarters of Moseley Architects, located in the once-industrial area of Scott's Addition, recently received platinum LEED certification, the highest LEED certification possible.  The Moseley headquarters is one of only four platinum LEED certified projects in Virginia, and the ONLY platinum LEED project that used historic tax credits.

So, while other projects are certainly due kudos for getting on the tax credit + green train, let's not forget those projects that have already achieved those goals. 

[Ed. Note:  My March 2009 blog entry identifies UR Downtown as the first historic tax credit + LEED certified project in the state and gold LEED certified, rather than silver.  While I believe the timing is correct, the LEED certification standard was not. Apologies for that error.]

Re-Blog - Unraveling the Mystery - Realtor Compensation

Well, it's Valentine's Day and I have an Open House coming up in a few hours, but I feel like I've been shirking my blogging responsibilities.  So my solution?  I am going to re-blog one of my own entries, from back in February 2008.  [Aside:  I can't believe I've been blogging for three years now.  AZY-cray!] 

So, here is a post on how compensation to a real estate agent really works.  I will admit on the re-read, the tone is a bit more - how shall we say? - strident than I would be today.  But I was fairly new to the business and a bit naive, I guess.  I really thought if people understood (i) what agents do to earn a commission, and (ii) how the commission split and expenses really worked, consumers would begin to understand that agents don't make that gross 6%, what that cost of sale "bought" them and would be more inclined to appreciate the value real estate agents can add. 

[NOTE:  I freely admit there are agents that don't add value relative to their compensation.  But if you, as a buyer or seller, feel that way, might I gently suggest that the issue may be that you are using the wrong agent?]

In any event, here is the re-blog.  If you have thoughts, suggestions, criticisms, feel free to comment.  I always welcome feedback.  And Happy Valentine's Day, everybody!

I Balanced Virginia's Budget - Response to RastaBossman

Last week I wrote a post in response to an article in the Richmond Times-Dispatch that invited citizens to attempt to balance Virginia's budget.  The point of the exercise was to demonstrate that balancing the budget by cutting $2B, or finding additional revenue sources, is not going to be an easy task. 

I received a fairly lengthy comment from as gentleman named RastaBossman.   I was initially going to respond to the comment with a comment, but as my response got longer, I decided it was best to make it a post.

Wait, if you cut all of those areas of state government by 5-10% there are going to have to be layoffs. How does that mesh with your therory that government workers traded thier salary for "near 100% job security" and should therefore take a pay cut. You're asking them to give up both job security and their low pay guarantee. You're inconsistent. (Of course you don't actually have to make any hard decisions - saying you'll cut a department by 10% is easy if you don't have to identify who in that department loses a job to generate the savings).

Now, RastaBossman also jumped in his comment from my budget balancing act to health care and then to the real estate tax credits designed by Congress to stimulate the economy.  I found his comments on both of these topics to be very interesting and worthy of response.  However, those posts shall have to be a bit later, since my eleven year old is bugging me for my computer so she can play WebKinz.  I'm sure you'll all be waiting with baited breath. [:)]

Perhaps I should have been clearer about MY approach to the exercise.  Here are the basic standards against which I made my recommendation:

• All the choices were bad choices.  As I meant to make clear, but perhaps only implied, we were beyond cutting "fat," now we were down to amputating "unnecessary" limbs.  So to take the medical analogy a step further, we're at the point that we're telling the doctor to cut off pinkies and pinkie toes.  If it doesn't get better, more fingers and toes are going to follow.
• My expectation - or at least my hope - was that each of these state agencies could come up with 5%-10% savings WITHOUT cutting jobs.  If they did have to cut jobs, that would be a last resort.
• There are alternatives to cutting jobs, such as not filling positions that become empty by attrition.  I think a 100% hiring freeze would be a great policy position.  [NOTE:  I thought there was a hiring freeze, but I know of people currently interviewing for state positions, which has confused me].  That is certainly a way to save towards the necessary 5%-10% without letting people go.
• However, I can tell you that if the only way to cut 5%-10% from an agency's budget is to cut some jobs, so be it.  I don't mean to be mercenary.  I know we're ultimately talking about real people.  But I don't believe that a business - which state government ultimately is, although it often doesn't act that way - in this environment that has not had layoffs has absolutely no extraneous positions or poor performers that could or should go. 

Again, I do not mean to be mercenary, I know these are real people with real lives. The fact that I don't have to identify the specific positions or the specific individual is correct.  But the Governor isn't going to identify the positions or people EITHER.  He's going to do exactly what I did - tell state agencies how much they have to cut, make them provide him with their recommendations, and he's going to say "yea" or "nay."  But McDonnell isn't going to be telling Sweet Little Old Lady Administrative Assistant in Agency XYZ that he's letting her go.  So I don't think your criticism of my approach on that point is either valid or relevant.  I was supposed to "Be the Governor," not a state agency head. 

The bottom line - no pun intended - is I was looking at the exercise with a private sector perspective and as an on-paper exercise.  I know professional service firms that have had 2, 3, 4 ROUNDS of layoffs.  And they're beyond laying off folks for performance-based reasons or because their position wasn't really necessary.  And these are organizations which have instituted across-the-board pay cuts, and/or furloughs, and have taken every step imaginable to keep the people they've got. These organizations are laying off people they WANT TO KEEP.  But if you've got five great people, and can only afford four, you lay off one.  That's how it works.  In this economic environment, government can't be exempt from that principle.

So if in this economic environment a small percentage of a 100,000 person workforce has to be let go, positions have to go unfilled, people have to work harder, and the rest of the state workforce has to accept furlough days that mean they receive 96% of their salary, so be it.

It's tough times.  Everyone has to make tough decisions.  I just published mine for consideration and criticism.  I've got my asbestos suit on.  Bring it.

Analysis of the Richmond, Virginia Condo Market - And Don't Forget Windsor Court!

Here's an article from this morning's Richmond BizSense about the local condominium market.  A big shout out to Chris Johnson of Monument Construction, who is quoted extensively in the article and is part of the development team on several condominium projects in the Fan and Museum District, including Windsor Court Condominiums, which I happen to be co- listing.

[A big shout out to Tom Dickey as well, the other half of the leadership of Monument Construction.  Hey, TD, whatever happened to the RPS Tourneys?]

The article's conclusion:  It's better to be a smaller project than a bigger one, because it's easier to get FHA financing.  Outside of those mega-projects, the condo market inventory is shrinking, and the demand and supply curves appear to be in equilibrium, with a switch coming shortly, and demand outstripping supply in certain markets, specifically the Fan and Museum District.  So don't expect any price drops in those areas.

There is a pessimist in the piece, who warns of "shadow inventory" coming on the market in the spring, producing a glut of resale units.  I'm not worried.  Resale units can't compete with NEW units, and there are only a few of those projects with multiple new unit inventory  left.  In the spirit of "a rising tide lifts all boats," here are some of the ONLY new condo projects with units available for sale in the Fan and Museum District, listed in alphabetical order:

• The Ambrata, 601 N. Roseneath
• The Hamlet, 7 S. Stafford, starting at $119,500
• The Mews, 1714 Cary Street, starting at $239,900
• Stafford Terrace, 101 N. Stafford, from $234,950 
• Windsor Court, 1608-1614 Grove, starting at $194,500

[NOTE:  There are a smattering of new units out there at projects that are almost completely sold out, such as the old Baptist Home at 1400 Grove Avenue and the studio units at 1641 Cary Street.  But for the most part the five projects above are the only new projects with multiple units for sale left in the Fan and Museum District.  In the interest of full disclosure, they are also all projects in which Monument Construction is involved.  ALSO NOTE, I am NOT including Downtown, Shockoe Slip, or Shockoe Bottom in this analysis.  If I were, I'd have to throw in a number of projects in the Bottom, Miller & Rhoads, and Rockett's Landing.  Those last two have that mega project, "lots of units, hard to get financing" problem, and skew the analysis of the condo market, IMHO].

Oh, and Aaron Kremer?  Next time you need a quote for an article on the state of the local real estate market, I'd be happy to oblige. 

Hey Governor McDonnell, Take a Look at This! I Balanced Virginia's Budget

OK, anyone who knows me well knows I am a math idiot.  I understand the concepts, typically, but it just doesn't come easy for me.  And people who know me well also know I love my regular, old-fashioned, newsprint newspaper.  No on-line substitute for me, no sir - sorry, John Sarvay, you'll have to pry the old school medium out of my cold, dead hands. 

[As a total aside, a HUGE shout out to my newspaper person, who got me my papers throughout Snowpocalypse II.  I love you, (wo)man!]

Why does the math + newspaper thing matter, you ask?  Well, on the front page of today's Richmond Times-Dispatch is an article that invites "You To Be the Governor" and cut the budget by an additional two BILLION dollars.  So, I decided to take the challenge. 

Well, my math idiocy is such that I didn't realize until a while into the exercise that I "only" had to cut $2B TOTAL, rather than $2B a YEAR.  I had come up with almost $3B in cuts, so I got to revisit my cuts and add money back, which made me feel pretty good.  Following are my cuts, with the policy rationales for all.

EDUCATION:  This category included K-12, the community college system, the largest public universities (VCU, Virginia Tech, UVA, George Mason and ODU), and cultural institutions (Library of Virginia, Virginia Museum, Virginia Commission for the Arts).

I really didn't want to cut anything here.  I think education is an investment in the Commonwealth's future.  But, after reflection, I imposed a 5% across the board cut on everything.  My policy position:  There isn't anywhere on this daggone sheet that ISN'T a bad place to cut.  We're beyond cutting fat.  We're down to bone, people, and amputating "unnecessary" limbs.  So everybody has to do less with more.  Also, I felt:

• Localities should be most responsible for their education systems.  To offset the proposed state K-12 cuts, they must find additional revenue sources for their programs.
• Higher education has been largely immune from the cuts in the most recent budget cycles.  They have to take their licks now.  I am also hoping that the universities can raise the money they need through capital campaigns and private fund raising.
• Hopefully, the impact of the revenue reductions will be limited to deferred capital expenditures, and instructional impacts will be limited unless and until absolutely necessary.
• The cultural institutions, for example the Virginia Museum of Fine Arts, have the potential to be  net revenue generators for the Commonwealth, by attracting tourists and other dollars.  Limiting impacts to 5% are therefore justified.

TOTAL ONE YEAR SAVINGS:  $308.1425M

HEALTH AND HUMAN RESOURCES:  This category included the Department of Medical Assistance Services ("DMAS"); the Department of Health ("DOH"); the Department of Behavioral Health and Developmental Services, which serves the mentally ill and mentally impaired; the Department of Social Services ("DSS"), which serves the poor; Comprehensive Services for At-Risk Youth and Families; the Department of Rehabilitative Services ("DRS"), which serves those with disabilities; and the Department of Aging.

People aren't going to like what I did here, so I'm prepared for howls of criticism.  Here was my thinking:

• I imposed NO CUTS on those Departments that provide direct aid to individuals, with one exception.  Part of the rationale is because Virginia has one of the lowest funding ratios per capita for services to the indigent and medically needy of any state.  This is not something we should be proud of, in my humble opinion.
• Society should be judged by how it treats those least able to care for themselves.  That's a philosophical position, but I believe the principle.
• As a result, I did not cut the budgets of DMAS, the Department of Behavioral Health and Developmental Services, DSS, or DRS.
• HOWEVER, I eliminated the Department of Aging.  Indigent elderly are covered by DMAS and/or DSS.  Non-indigent elderly receive Medicare and Social Security.  The AARP is the strongest lobbying organization in the nation, and there are a host of not-for-profit programs that address the needs of the elderly.  I don't understand the need for a specific department for a subset of individuals that already seem to be extremely well-served.
• I also cut by 50% the funding for the Department of Comprehensive Services for At-Risk Youth and Families, and consolidated this Department with DSS.  I'm not sure why the folks being served by this Department wouldn't also be receiving services from DSS and/or DMAS.  On paper, I don't see the need for a bureaucratic organization that provides services to a subsection of people already receiving public assistance.
• Finally, I cut by 10% the budget of the Department of Health. DOH provides general public health programs rather than direct personal services to the poor, the ill, the mentally disabled, or the physically challenged.  I am not suggesting that programs like Water Safety and Health Inspections aren't important, but again, everyone is going to have to do more - or as much - with less.

TOTAL ONE YEAR SAVINGS:  $169M

PUBLIC SAFETY:  I know it is never "good politics," particularly as a law and order candidate, to appeared to be soft on crime.  But I don't care about politics and I'm not running for anything, so I have the luxury of looking at this without political concerns.  I do think the reality is in extremely tough times we all have to work harder, smarter, faster, BETTER, and must do more with less.  The Department of Public Safety is no different.

• I imposed 5% budget cuts on the Department of Corrections, the Department of Juvenile Justice, and the Department of State Police.  These seem to me to be the people directly responsible for overseeing our prisons and catching criminals.  I wanted to insulate these departments as much as possible, but they still have to take a hit - just like education organizations.
• I EXEMPTED the Department of Forensic Science from budget cuts.  This organization has been underfunded in the past, ans needs every dollar it gets to solve crimes in a concrete and indisputable way. 
• I imposed 10% budget cuts on the State Compensation Board, the Department of Correctional Education and the Department of Criminal Justice Services.  None of these were palatable decisions, but seemed to be the lesser of the evils.
• NOTE:  I frankly have no idea what the Department of Criminal Justice Services does.  According to the R-TD, it "works to improve and promote public safety."  It gets a LOT of money - almost $200M a year - to do that.

TOTAL ONE YEAR SAVINGS:  $187.95M

OTHER:  This category included the Department of Conservation and Recreation, the Virginia Circuit Courts, the Virginia Department of Transportation ("VDOT") and the Virginia Tourism Authority.  I cut each department's budget across the board 10% over two years, EXCEPT for the Virginia Tourism Authority.  I gave them an additional $1M per year, on the theory that they could be net revenue generators for the Commonwealth.  But don't think if I was Governor that I wouldn't be standing over their shoulder in this economic environment DEMANDING that they leverage that investment into additional dollars for the Commonwealth.

TOTAL ONE YEAR SAVINGS:  $7.785M

STATE WORKERS:  I expect to hear - assuming I hear anything (:)) - the strongest objections to these recommendations.  I recommend (i) 15 furlough days per employee ($240M) and (ii) an additional 5% contribution towards retirement ($90M).  That saves a TON  of money, $330M.  In anticipation of the state employee backlash, here are my rationales:

• 15 furlough days, over a 250 day work year (5 days x 50 weeks) is the equivalent of a 6% salary reduction.  That's mice nuts, compared to what's going on in the private sector.  Would you rather have your salary reduced 6%, or be laid off?  Not a hard call, IMHO.
• To the people who say "It's not fair, we're public servants, we already get paid less than our equivalents in the private sector," here's my answer.  Anyone who went into government service traded one potentiality - huge cash reward - for another - stability.  If someone tells me they went into government service to get rich, they ain't the sharpest knife in the drawer.
• The risk-reward principle means you give up high return opportunities for steady, safe returns. 
• Government workers are compensated in other ways besides salary, including incredibly rich benefits packages, both health benefits and retirement benefits.
• The other major advantage of a state government job is almost absolute job security.  Last I heard, you have to dance naked on the desk of the Governor to get fired.  And even then the firing would only be effective after a complex and complicated "grievance" procedure.  Hey folks, welcome to the real world.  In the private sector, Virginia is what's called an "at will" state, which means any employee serves at the will of his or her employer, and can be fired for any reason, OR NO REASON, so long as it is not discriminatory, at any time. 

I have no problem making the recommendation to cut state employee salaries and benefits.  Maybe that's partly because I know plenty of bright, smart, talented people who have lost their jobs, or who have been making it work on 20%+ salary reductions for over a year now.  So recommending a 6% salary reduction for people who have almost 100% job stability and some of the richest benefits packages around, including a defined benefits retirement plan, ain't a hard call.  Guess what?  6% of $50,000 is $3,000.  6% of $100,000 is $6,000.  These are not insurmountable deficits to overcome.  Sell some stuff on eBay.  Cut back on meals out.  Clip coupons.  No new clothes this year.  Shared sacrifices mean....shared sacrifices.  State employees, it's your turn.

TOTAL ONE YEAR SAVINGS:  $330M

TOTAL ONE YEAR SAVINGS FROM ALL CUTS:  $1,002,877,500

NOTE: I would probably impose the additional $.30 per pack cigarette tax, to raise an additional $155M in revenue a year.  This is the classic example of the user fee, and it's also got additional public policy rationale because it might limit teen and young adult smoking, which would be all for the good.  Any additional revenues that I raised, I'd add back money in K-12 education first.

So there you have it.  If I was Governor, presented with these limited options, this is what I would do to close the $2B budget deficit.  People may hate my ideas, and that's fine.  Let's have a productive dialogue.  I'm curious to see the reaction.  And the exercise just goes to show, it ain't easy being the Boss.  These are TOUGH decisions.