Market trends in the Washington, D.C., region indicate that housing values will return to 2005’s phenomenal highs within five years, says an economist who studies regional growth at George Mason University in Fairfax, Va.
Dr. Stephen Fuller, speaking to members of the Northern Virginia Association of Realtors on June 17, said the Washington housing market has recovered 10 percent to 12 percent of its value in the past year after being down 25 percent to 30 percent at its lowest in 2008.
Despite a forecast of higher interest rates by year’s end, and an increase in taxes for many as tax cuts implemented in 2003 expire, Washington houses should fetch prices similar to those at their 2005 peak by 2015, according to Fuller.
And the northern Virginia market, he added, is likely to return to peak values sooner — by 2014.
“When are houses going back to the values they were here?” Fuller asked, pointing to a chart containing 2005 values. “That wasn’t defensible; it was too soon. But if you play this out, in Virginia, it’s going to be 2014 when we are back at those astronomical values.”
Fuller said an examination of the charts shows that, between 1999 and 2009, the Washington area housing market saw 6 percent overall annual growth, despite its swinging highs and lows.
He reminded Realtors that the long-term average return on investment for real estate is 6 percent to 7 percent. “So we’re only a point below where we would have been if we’d been on a straight-line trajectory the whole time,” Fuller said.
Agents attending the seminar were buoyed by his projections but raised concerns over what some analysts say is a looming “shadow inventory” of pending foreclosures and homes that could flood the market now that homeowners, who were awaiting a market bounce, list their properties.
Fuller said trends indicate reluctant homeowners are slowly putting their homes on the market, having accepted the current values, and banks have spent the past two years learning to deal with foreclosures and expedite sales.
“In the next year, we’ll still see signs that are troubling…but we’ve now gone through a year of watching indicators that are pointing to growth,” Fuller said.
He added that the one economic sector that continues to concern him is the construction and home building industry: “New home construction started subtracting from the economy in 2005, was still really negative in ’09 and is projected to go positive in ’10. Not a whole lot — about 500,000 units. We should be doing 1.4 million, and we will, but it’s not going to be until ’11, ’12, and we don’t equalize until ’14. That’s a key element to the recovery. The building industry puts people to work, not just the ones in construction. It has the broadest impact on the economy, a big impact, but it won’t show up until this time next year,” Fuller said.
Fuller’s reluctant pessimism about the building industry’s recovery puts him on par with the industry itself, which has expressed less confidence in its recovery. This week, the National Association of Home Builders said they believe the expiration of the first time home buyer tax credit will contribute to slower housing starts, according to an Associated Press story.
Fuller said housing starts likely will increase in Washington, D.C., as consumer confidence grows, as the city maintains its low unemployment rate and as the market for existing homes expands.
“I’m holding out for the October figures. By then, we’ll have worked through the distortions of the tax credit and the economy should be on its own. Take a close look at that month, as it will be the month that sets up the next year,” Fuller said.