Military families cooling to home ownership
By Sarah Kleiner Varble | The Virginian-Pilot | Published: February 24, 2013
Josue Fernandez thought his nightmare was coming to an end.
The senior chief petty officer faced 600 miles of interstate as he pulled out of Jacksonville, Fla., in early December. His destination: a home in Suffolk he had been trying to sell since the Navy transferred him from Hampton Roads in 2008.
The task ahead was not pleasant - he needed to mow his neglected yard before the city put a lien on his property - but he had a reason to be optimistic.
After years of reducing the price on his home and watching deals with prospective buyers fall through, Fernandez's real estate agent lined up new buyers and set a closing date for mid-December.
This time, Fernandez thought, he might finally be free of payments for an empty house whose value - like so many others in the region and across the country - had tumbled below what he owed on his mortgage.
"Hopefully, the nightmare will be over by the 17th of December," Fernandez said early that month.
But as he drove north on Interstate 95 through South Carolina, his phone rang.
It was his Realtor with another dose of bad news: The deal with the latest buyers would likely fall through, too. That meant the closing wouldn't happen.
He'd have to start over - again.
"I don't know what I'm going to do," Fernandez said. "I made another trip to Suffolk for nothing."
The crash in home values that followed the unprecedented run-up in prices in the mid-2000s took a toll on millions of Americans.
But Fernandez and his peers in the military - many of whom are ordered to move to a new city every few years - have been hit especially hard. Some argue that their misfortune has contributed to the sluggishness of the housing market's recovery in Hampton Roads, which depends on its robust military population.
Members of the military have fled the homebuying markets in the Tidewater area, elsewhere in Virginia and across the United States, and the trend has shown no signs of reversing, according to data gathered from the Navy and the U.S. Census Bureau.
The same is not true for the general population; more Americans and Virginians still own their homes rather than rent.
Vinod Agarwal, professor of economics and director of the Economic Forecasting Project at Old Dominion University, said military members have "rationally" decided to rent in the past several years, rather than buy a home that might be difficult to sell without taking a loss when they have to relocate.
Now that the local real estate market is showing signs of a recovery - the median sale price of existing homes climbed 2.7 percent in 2012 after declining steadily since 2008 - Agarwal expects members of the military to begin feeling comfortable buying homes again this year. But there's still plenty of uncertainty in the market because across-the-board defense cuts scheduled to begin in March threaten to sucker-punch the economy.
Nearly half of the Hampton Roads economy is driven by military spending, studies have shown. So the flight from homeownership among members of the military has taken a toll on the real estate market.
Less demand for homes puts downward pressure on prices, Agarwal said.
Acacia and Jim Ellis are losing money every month.
The mortgage they pay on their home in Manassas is $2,600 a month. The renters who live there pay them $2,450 a month.
"It beats the alternative of zero," Acacia said.
They bought the five-bedroom home for $364,000 in 2003 when the market was heating up. The real estate appraiser's office valued it at $294,500 that year.
The value skyrocketed to $525,100 in 2006, but the housing bubble burst. When Jim was transferred to Hampton Roads with the Navy in 2009, the house was valued at $306,000, and the Ellises couldn't find a buyer.
"If I had to do it over again, I don't think I would have bought a house until we were finished with the military," Acacia said.
When the Ellises came to Virginia Beach, they couldn't afford a second mortgage, so they rented out their home in Northern Virginia and moved into a rental home in Princess Anne Quarters.
Acacia wants to move "somewhere fun" and near the beach, but she said financial pressures will likely prompt them to go back to Manassas when Jim, a captain and intelligence officer, retires in a few years. She's not happy about it.
"We're both from California, but we just can't afford to live there," she said.
In 2005, about 54 percent of housing units occupied by members of the military in Virginia were owned, according to the Census Bureau's annual American Community Survey. In 2011, the latest year for which data are available, about 41 percent were owned.
The same figures paint a different picture for the general population. The homeownership rate has dropped, but not nearly at the pace it has among service members.
For all housing units in Virginia, regardless of their residents' occupations, 63 percent were owned in 2005. That had dipped to 60 percent in 2011.
Analyses show similar differences nationwide.
Surveys of Navy and Marine families in Hampton Roads (conducted by the Navy) show that the percentage of owners and renters was about the same - close to 45 percent - in 2002 and 2003.
But the two groups started to diverge in 2004. As of 2011, 53 percent of military families reported that they rented, and 38 percent said they owned.
Van Rose noticed the trend at Rose & Womble Realty Co., where he's co-owner and president of the new-homes division. Military families used to make up half the clients, but in the mid-2000s, they dropped to about one-third.
Within the military, he said, an increasingly common sentiment was: "Don't buy houses because you're just setting yourself up for financial ruin, because you're probably going to get orders in three years, your house is going to have gone down in value, and you're going to get screwed. So don't buy. Rent," Rose said. "We ran into so many of those people in the last few years. I had never run into that ever in my life here. I just lived off of military buyers."
So did Susan Galloway, principal broker and owner of Hampton-based Morning Star Realty, which she touts online as a military relocation resource.
Helping military families find homes has been Galloway's niche, but most of the clients who have contacted her in the past few years have been interested in renting.
"I had no income. Well, a little income," she said. "I was used to making, just on my own, enough to stay afloat and have a little extra and enjoy a lifestyle. And then it dropped. I had listings that couldn't sell."
Galloway wound up having to refer her clients to property managers so they could rent out their homes, and her business suffered.
"The general population - someone who doesn't have to move every two to five years - has the time to wait for a good opportunity to buy or sell," she said.
Until recently, Laura Bender and her husband, Kenneth Anderson, had three homes and tapped-out retirement savings.
The Navy chaplain and her husband, a retired police officer, were underwater on a home they bought for $315,000 in Rhode Island, where Bender was based until 2008. The value is now around $220,000.
They also owned a home in Norfolk, Bender's station until 2011, that they were unable to sell and that sat empty for 19 months because their agent couldn't find a renter.
When Bender was reassigned to the Marine base at Quantico, she and Anderson felt they had little choice but to drain their retirement savings and purchase a home with cash because they couldn't afford a third mortgage and they didn't want to "give away" $2,000 a month on rental payments.
They've been paying mortgages and for maintenance costs, utilities and yard work on the houses for years, and it gets especially tight when they are between renters.
"Basically, I work to pay for empty buildings," Bender said.
Their luck finally turned a corner in January when they were able to sell their Norfolk home.
They got a small amount of equity out of it, but the proceeds from the sale won't come close to replenishing their savings.
"We have one house rented and the other house sold, so we can save some money again," Bender said. "I'm just happy it's done."
As a chaplain, Bender hears stories from all walks of life within the Navy and, from her perspective, the housing crisis has taken a toll.
The message she tries to send is one of caution.
"When I talk to especially younger enlisted folks about buying a home," she said, "I tell them, 'Look, here's my experience and, unless you think you can lose that much money, maybe it's not a good idea.' "
When the real estate market offered up a basket of lemons, Dennis Blackmore used short sales to whip together a pitcher of lemonade.
Military families "are just so happy to be out of that house," said Blackmore, a Virginia Beach-based real estate agent and owner of Creed Realty. "You wouldn't believe the joy they have when the bank gives them approval."
A short sale occurs when a bank allows a home to sell for less than what the owner owes on the mortgage.
The military rolled out a program last year that considers transferring to a new duty station a hardship, and it makes it easier for a short sale to proceed.
"It is in everyone's interest for the men and women serving in our armed forces to focus on the important job they are doing defending our country, rather than worry about the maintenance and leasing of a property in another jurisdiction," Edward J. DeMarco, acting director of the Federal Housing Finance Agency, said last summer as he announced changes to the military's short-sale policies.
Fernandez, the senior chief petty officer who hasn't been able to sell the home he owns in Suffolk, is intimately familiar with maintaining a home from a distance.
He purchased the house in 2004 for $165,000. When he was reassigned to San Diego in 2008, it was appraised for $245,000, but Fernandez couldn't find a buyer and took it off the market while his wife (they're now divorced) and two children stayed behind.
A second attempt to sell, in 2010 - this time for $199,000 - also failed. He dropped the price to $189,000, then to $175,000 in 2011.
Last year, after he was transferred from California to Florida, he considered foreclosure, but instead applied for the program that would allow him to get out from under the house with a short sale. He was approved, but there was a catch: He needed to find a buyer.
Meanwhile, the aviation electronics technician has had to maintain the home from Florida.
Friends he knew when he lived here from 2004 to 2008 have moved away. His brother, who lives nearby, also is active-duty Navy and often is away on deployments.
He paid a company to cut the grass for him, but his sister-in-law told him the work wasn't getting done. Hence the 600-mile drives towing a trailer full of lawn equipment.
"Anytime you don't go and cut your lawn in front of your property, the city puts a big note on your door that says, 'If you don't cut your grass in three days, we're going to put a lien on your house until you pay the people that we are sending to cut your grass,' " Fernandez said.
"I had to fly to Virginia to go to the city of Suffolk and say, 'I am active-duty Navy; I don't live in Suffolk; the house is in the process of selling; I will take care of it; do not put a lien on the house. If you put a lien on my house, it will create another hardship.' "
In the past, buying a house was a no-brainer, even for members of the military, Blackmore said.
"Ten years ago, everybody thought, 'Hey, a house is a piece of your investment portfolio,' " he said.
But now, Blackmore offers a piece of advice that he wouldn't have given a decade ago:
"People are a little reluctant to bring on debt, and I agree. I agree that they shouldn't even be considering buying a home unless they know they're going to be in this area for greater than three years - probably more like five years."
David Butler, a real estate agent with Watson Realty Corp. in Jacksonville, owns a few homes he purchased throughout a 20-year career with the Navy. He didn't set out to collect homes as investments, but he says others in the military benefited from their properties when real estate assessments were reliably climbing year after year.
"I think buying a home and investing in real estate are two entirely different things," Butler said.
"Buy a home as a nice place to live. If it appreciates, that's a good thing," he said. "If it doesn't, then you have a nice place to live."
There's debate about what kind of an effect the military has had on the local market.
"The one thing the military has is, they have a paycheck every two weeks," Blackmore said. "Someone in Phoenix or Las Vegas who lost a job doesn't have income. So even though the military guy has a house and he's underwater, he's still been able to make payments."
Local real estate agents - Rose, Galloway and Blackmore - say that the market is turning a corner and that military buyers are starting to feel comfortable again.
Blackmore says military families would prefer to buy a home because they're paying a premium for rent.
The flood of military families into the rental market has boosted demand, which raised rental prices.
Lamar Raker, a real estate agent with RE/MAX Ambassadors, said that the rental side of his business has increased and that he manages more properties for homeowners who can't or won't sell. Of the 37 properties he manages, 16 are occupied by active-duty tenants, and 13 of those moved in during the past year.
But Raker sees a turnaround in the homebuying market, and so does Agarwal, the ODU economist.
Military families, however, will be slower to return than their civilian counterparts who have the luxury of waiting for the right time to buy or sell, Agarwal said. He expects that census data will show a continued trend away from buying for military families in 2012, but he says momentum for purchasing should pick up in 2013.
Still, there's a big caveat in Agarwal's prediction.
If Congress allows military spending cuts to proceed, he said, the housing recovery will almost certainly falter, and prices may decline again.
"Uncertainty is the biggest enemy," Agarwal said. "I wish Congress would just make a decision one way or another because the people would know what is going to play out, and they can make their decisions accordingly."
Other military communities stand to take a hit, too.
In San Diego, it's difficult for military buyers to purchase homes because their offers are often overlooked, said Marylou Rodgers, marketing and business consultant for McMillin Realty.
Inventory is low there, and about half of the sales are distressed - meaning they're either foreclosures or short sales - so the market is flush with cash from investors, Rodgers said. Plus, loans backed by the Department of Veterans Affairs and other agencies like the Federal Housing Administration have strict guidelines in place to ensure that the buyer is getting a solid home.
"When you have seven offers and a few of them are cash and some are conventional (loans), the VA and FHA buyer is having a difficult time getting their offer accepted," she said. "Every now and then, you'll hear a warm-hearted story about a seller who is a veteran himself, and he takes a little lower price on his house, knowing he's selling it to a veteran. That's the exception to the rule."
Derrick Nelson made a promise to his half-dozen students upfront: "I'm not going to tell you what you want to hear. I'm going to tell you what you need to hear."
Nelson, a realty specialist and Navy retiree, teaches monthly workshops on homebuying for anyone in Hampton Roads with a Department of Defense identification card.
"The old rule of thumb used to be, if you are not going to be in the area for at least three years, I don't suggest you buy a house," Nelson said, but "the world has changed."
Members of the military may have orders to stay in the area for three or four years, but "you can still get pulled out of here at any time. That's just the way the world is right now," Nelson said. "I usually tell people, 'I do not recommend you buy a house unless you are absolutely ready, willing and able. You are absolutely sure. You gave it a lot of thought.' "
Earlier this month, he raced through a two-hour presentation that ran the homebuying gamut. Is it better to rent or buy? What are the responsibilities of a Realtor? What can damage a potential buyer's credit? What can be done to ensure that the real estate agent for the seller brings the keys when closing papers are signed?
"We want to make sure they fully understand as much as possible what they are getting into," Nelson said. "Buying a home is not an event; it is a process."
The Navy Housing Service Center where Nelson works in Norfolk is the headquarters of housing offices in the region, and 27,000 people funnel through every year. About 1,100 of those attend workshops, said Regina Stanford, realty branch supervisor at the center.
Among other services, the center offers monthly workshops on buying homes, selling homes and managing properties. And the five realty specialists who work there offer one-on-one counseling daily, Stanford said. They encourage their clients to let them review legal documents - especially if a deal smells fishy.
The housing center offers advice, Stanford said, but won't make decisions for its clients. And the Navy does not take official positions on whether its personnel should buy or rent.
"Leadership would never come down and say, 'It is a bad housing market, and we don't want any of our service members to buy a house,' " said Heather Welch, public affairs specialist for the Navy's Mid-Atlantic Region. "What we try to do is make sure they have the resources to make those personal choices."
Stanford has her own theories about why members of the military might be more inclined to rent.
She noted that more builders are constructing luxury apartments and offering incentives such as discounted security deposits. Also, she said, conventional loans aren't as attractive to military buyers because of government reforms put in place after the housing bubble burst, and many service members want to wait until they retire to use their VA loans.
Nelson said it's crucial for members of the military to visit the center for free services so they aren't caught off-guard in the complicated and emotionally taxing process of buying a home.
His goal is to inform potential homebuyers, not deter them - although he said he's relieved when they second-guess themselves.
"That's the whole object of the game," Nelson said. "You may think you are ready, and on paper it might say you are qualified to buy a house, but no one is thinking beyond that first year, because it costs money to own a house."
When the December closing fell through on Fernandez's Suffolk home, he decided he'd had enough.
By then, he had reduced to $145,000 the price of a home once valued as high as $245,000, and he still couldn't find a buyer.
He put an ad on Craigslist and found a renter, who moved in on Feb. 1. He will try to sell again in two years when the lease ends.
After leaving Hampton Roads, Fernandez rented homes in San Diego and Jacksonville because he couldn't afford a second mortgage.
Even if he can get out from under the mortgage when the lease ends - seven years after he first put the house on the market - Fernandez said, he won't buy another home until he retires from the Navy.
"I don't want to go through this again," he said.
"The job that I'm doing now, I can be in Florida today, and tomorrow I can be in the gulf or I can be in Afghanistan or I can be in California. It's not a stable job. When the Navy requires my presence, I have to go."
Sarah Kleiner Varble, 757-446-2318, firstname.lastname@example.org