Is this a good time for buyers or sellers? Are home prices radically deflating? What have been the major changes and what's the outlook for 2007?
All these questions and more were addressed by representatives of the three major area realtor associations focusing on residential properties and one from the Greater Washington Commercial Association of Realtors during a December 14 press conference at the National Press Club. For the most part their answers painted a far more positive picture than many analysts have been espousing.
But then they were talking about the Greater Washington Metropolitan Area, not the national picture. "This area has outdistanced the rest of the nation. We've added 65,100 jobs just in the last six months. That's an increase of 2.9 percent," said John McClain, senior fellow and deputy director, Center for Regional Analysis, George Mason University.
In kicking off the five member panel review of the 2006 real estate market in comparison to the "white hot" market of 2002 through mid 2005, McClain stated, "The Washington Metropolitan Area has not built enough houses to provide for workers in this economy. High prices not only continue to hold but will continue to escalate."
That is why many in the Greater Washington work force commute from Baltimore, Md., Culpepper, VA, and even Pennsylvania, according to McClain. "Forty six percent of the jobs throughout the DC area are in the highest sector of the economy. We are doing well because of the federal government," he said.
Over a 20 years span, 1983 to 2003, federal spending in this area has risen from just under $30 billion to $108.2 billion per year. However, in 2005 there was a drop of approximately $4 billion.
This contributed to a stagnation in both housing prices and sales in the past 15 to 16 months. Between 2005 and 2006 housing prices
regionwide rose only two percent on average, from $454,000 to
$463,000. That compared to the five previous years, 2001 through 2005, where price escalations ranged from 10.5 percent to 21.7 percent annually.
"During the Washington area's worst real estate price drop, 1991 to 1996, this market lost only three percent of its value. It then started to climb once again," McClain said.
Time on the market has also escalated from the seller market of 2003 and 2004 when owners were getting multiple bids from anxious buyers and housing market shelf life was averaging 22 days. It has risen to an average of 83 days, which is the long term traditional time on the market, according to the panelists.
"This market adjustment period should come to an end in early 2007. Then it will probably start to tick upward again at a rate of two to five percent. In 07, 08 and 09 we will see a return to our traditional growth rate," McClain predicted.
THIS PROJECTION was buttressed by Margaret Ireland, 2006 chairman of the Board, Northern Virginia Association of Realtors. "The average sale price of a house in Northern Virginia has hovered around 98 percent of the peak market," Ireland said.
"However, sales were down approximately 30 percent in 2006 compared with 2005. There were 20,600 homes sold in Northern Virginia in 2006. That compared with 30,400 units sold in 2005," Ireland said.
"The average home price in Northern Virginia dipped only an average of four and one half percent in 2006 from 2005. However, even with the drop off, if the average buyer purchased a home in November 2005 and sold it in November 2006 they could expect to make $250,000 profit on average," she said.
Overall the average home price in Northern Virginia fell less than one percent, from $538,144 in 2005 to $537,500 in 2006. Ireland attributed the sales slump to three factors: 1. Mortgage rates climbing above six percent and remaining there for much of 2006; 2. Soaring gasoline prices after Katrina; and 3. Home prices that finally "hit the wall" after skyrocketing nearly 100 percent since 2000.
"Houses in Northern Virginia averaged 85 days on the market," Ireland said. That is slightly longer that the area average of 83 days and is more prevalent in the outer markets of Loudoun and Fauquier counties than closer in locations such as Alexandria City, according to Ireland.
Another unusual factor occurring in the market at this time is that the number of homes coming under contract to realtors has been increasing during the late Fall and winter months which is not normally the case, according to Ireland. "That could be an indicator that the buyer's market may be leveling off," she said.
Ireland predicted that home prices in Northern Virginia will escalate three to five percent in 2007. Historically, homes in the Washington Metro Region appreciate in value at a rate of seven percent per year with values doubling every 11 years, according to NVAR research.
Positive predictions for 2007 are based on the following, according to NVAR:
•Falling mortgage rates from an average of 6.8 to 6.1 percent.
•Reduction in gasoline prices
•A healthy economy driven by a strong job market
•Increased sales activity in November
•A drop in listings from a high in the spring of 2006 to a November low close to the low of November 2004.
THE MOST POSITIVE picture in the residential market came from Brenda Small, 2007 president, Greater Capital Area Association of Realtors. "Median sales prices in both the District of Columbia and Montgomery County Maryland both continued to escalate throughout 2006," she said.
This occurred in spite of fact that both locales experienced a substantial growth in inventory. That inventory escalation included both single family homes as well as Condominiums and Co-Ops.
Both areas averaged less days on the market than Northern Virginia. In the District it was just short of 70 days and in Montgomery County it totaled just short of 80 days. Prices showed very little changed from 2005 to 2006 in both markets.
One of the categories most impacted by the 2006 readjustments in Northern Virginia has allegedly been that of condominiums and co-ops. In both Mount Vernon and Lee districts this so-called over availability was partially blamed for the suspension of two highly visible developments -- Mount Vernon Gateway and Kings Crossing.
However, in both the District of Columbia and Montgomery County the condo/co-op residential market showed only minimum variance from 2005 to 2006, according to statistics from the Greater Capital Area association. In Washington condo prices dipped only six percent while in Montgomery County they actual increased by four percent, the association reported.
These positive statistics also held true for Prince Georges County according to Donald L. Frederick, Jr., president, 2006-2007 Board of Directors, Prince Georges County Association of Realtors.
Comparing 2005 and 2006 statistics, housing prices fluctuated only
2.3 percent.
When it came to the commercial side of the equation, Marty Almquist, 2007 president, Greater Washington Commercial Association of Realtors, stated, "The commercial market throughout the Washington region had a terrific year in 2006."
All areas have dropped in the amount of vacant space available during 2006, according to Almquist. Northern Virginia presently has an estimated 134,000,000 square feet of vacant commercial space.
"Thirty five percent of commercial space now under construction is pre-leased. Metropolitan Washington will continue to absorb new commercial construction well in 2007. In Northern Virginia, the absorption rate was down only slightly," she said.
"Northern Virginia's commercial market continues to be driven by the federal government and federal contractors. They use 70 percent of the space available," she said. However, both use more commercial space closer to the District than farther out, according to Almquist.
The Base Realignment and Closure Report (BRAC) has had a substantial impact on the Northern Virginia commercial market, especially in the Crystal City area of Arlington County, Almquist noted. That impact will continue in the years ahead as Fort Belvoir acquires an additional 22,500 federal personnel plus the contractors that will accompany that influx.
Rental rates in the Tyson's Corner area have escalated 20 percent over the past several years, according to association statistics. This has been accompanied by a decrease in concession packages.
In looking ahead, the consensus of the panel was that the residential real estate market has already begun to climb out of its perceived slump which they characterized as "a return to a more traditional market." And, the commercial market never experienced a down turn.