How Low Will It Go? Well, Where Do You Live?
By Elizabeth Razzi
Saturday, July 7, 2007; F01
The Local Address column usually appears in the Sunday Business section.
It is running today because of the Independence Day holiday. It will
return to Sunday next weekend.
You might call it the $200,000 question. In a recent Web chat on
http://washingtonpost.com, a reader from Manassas summed up what is
probably the overriding concern of many local homeowners:
"How much lower is this residential market going to go?
I have already
lost over $200,000 in value compared to what I paid for my house in
Gainesville last year! Even after taking the down payment into
consideration,
I owe more than what the house is worth! Help!!!"
Let's pause and let that number sink in.
Two hundred thousand dollars.
Gone. Lea Morris, an agent with Long & Foster's Gainesville office, says
a decline of that magnitude is indeed possible.
I had called her to ask about a listing on Etherington Court in
Manassas. The house has four bedrooms and 3 1/2 bathrooms on nearly two
acres. It's
listed at $854,000 in a foreclosure sale. Morris said houses
in that neighborhood
sold for about $1 million when they were built in 2005.
"The list prices we have now are
much lower than a year ago," she said.
She's frustrated that so many buyers are still sitting on the fence
despite the negotiating leverage they have. "They can go in and offer a
lower sales price and get all their closing costs paid," Morris said.
The Manassas area is one of the harder-hit local markets. According to
Metropolitan Regional Information Systems, the local multiple listing
service, the number of homes sold in Prince William County, plus
Manassas and Manassas Park, was
36 percent lower in May than a year
earlier, the median price was down more than 6 percent, and time on the
market had increased by 85 percent. It was 62 days on average last year;
now it's 115 days, based on May numbers, the most recent available.
Builders are trying to
unload their surplus of homes with discounts and
free upgrades, a tough combination to beat if you're trying to find a
buyer for your resale home. And the rising number of foreclosure sales
hitting the market -- at discount prices -- drags the market down.
How much worse can it get? When will the market turn around? It depends
on who you ask.
If you listen to the investors who are buying futures contracts on
residential housing markets, a new type of security that started trading
on the Chicago Mercantile Exchange about a year ago, Washington area
prices will fall by about 4 percent through May 2008.
These financial instruments, which are based on an index that tracks
changes in prices of closed sales, offer investors a hedge against other
investments. These housing futures don't have much of a track record
yet, but they show that investors are betting real money that prices in
the Washington area are headed lower.
Analysts at the Pennsylvania-based forecasting company Moody's
Economy.com predict that Washington area prices will fall 6 to 7 percent
through the end of 2008. According to their housing analyst, Patrick
McPherron, the area's general affluence and strong employment in
government and technical sectors may have delayed the decline that other
parts of the country have felt, but we're about to play catch-up.
However, neither of those prognosticators makes a distinction among
different parts of the Washington area. In some neighborhoods,
particularly those where there's not a lot of competition from
overstocked new-home builders, values are stable, or even appreciating
slightly. Consider this comment from an Alexandria reader during the
same Web chat:
"In my neighborhood, home prices continue to increase. It's not
double-digit annually, but the year-to-year trend is still slightly
upward. By the way, we bought in March of '06 and feel that our house is
holding its value well."
Indeed, the MRIS figures show a much less painful experience for
homeowners in Alexandria than in Manassas.
In Alexandria, the number of
homes sold in May was down 12 percent from last year; the median price
was down 2.3 percent; and time on the market was up just 5 percent, to
62 days, on average. It's hardly the go-go market of years past, but it
probably looks pretty darn good to our Manassas reader.
When asked how much lower local values might go, John McClain, deputy
director of the Center for Regional Analysis at George Mason University,
said: "Not much. The fundamentals of the economy are very sound." In
fact, region-wide, average prices for single-family houses started to
turn up in January, he said, even though it was just a 1 percent
increase over the previous January. Prices rose during three of the
first five months this year compared with last year, he said.
"Suburban Maryland has generally done better than Northern Virginia,"
McClain said. "There are lot more new homes in Northern Virginia, and
the run-up in prices was higher." In fact, quite a few of the new jobs
generated in Northern Virginia in recent years have been filled by
commuters who live in more affordable communities in the District and
Maryland.
McClain said he thinks national forecasters underestimate the strength
of local employment, which supports a stronger housing market.
He expects prices to increase about 2 percent this year. They may rise 4
or 5 percent in 2008. That's none too exciting; he notes that the
historical average is around 7 percent a year. "We probably won't get
back to that until 2009," he said.
"If you get a job in Washington and your household has a reasonably good
income and you expect to be in a house five years, you should be fine,"
McClain said.
Let's hope our reader in Manassas can ride the market out that long.
