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The Washington Times: Ringing Out The Year on a Positive Note

January 3, 2012  |  by Anne

Original article available on WashingtonTimes.com

Somewhat surprisingly, 2011 turned out to be a good year for the Washington-area real estate market. Buyers were more active than they have been in five years, and the backlog of unsold homes fell to its lowest point in seven years.

“It has been a really positive year, continually outpacing other markets in the U.S.,” said John Heithaus, chief marketing officer of Metropolitan Regional Information Systems, the database used by area real estate agents.

“Throughout the region, we’ve seen areas of really strong performance. Of course, we have to remember that all markets are very local.”

The point Mr. Heithaus makes is important to remember when considering real estate. National news outlets typically report on nationwide real estate trends. But the Washington-area economy is doing much better than average, and the local housing market reflects that.

The “real estate is local” rule goes deeper still. Within this region, you will find hot markets where prices are rising and others where sales are slow and prices are still falling.

“Imagine someone says home prices are up 3.9 percent in this area, and I’m up in Baltimore trying to sell my condo,” Mr. Heithaus said. “I may be expecting to make another 3.9 percent profit on my sale, but my broker says, ‘No, it just doesn’t work like that.’ “

It doesn’t work like that because home prices rise only when buyers are competing with one another for a limited number of available homes. This is happening in some markets, but not all of them.

Still, in most of the Washington-Baltimore region, sales rose and inventory fell in 2011. That combination meant buyers competed with one another more than in any other year since 2005.

One small market in Virginia showed more of that competition than anywhere else: Manassas.

“The resurgence of Old Town Manassas has been received so well,” said Cindy Stackhouse, a Manassas-area broker who was 2010 president of the Virginia Association of Realtors.

“People like being able to walk from their home to Old Town, and the rail has been very popular. Old Town Alexandria has always been prime real estate. People are trying to return to that feeling, and Manassas has it.”

Throughout the year, Manassas and Manassas Park City had a high level of buyer competition. The limited supply of resale inventory has even caused a reversal of fortunes for long-suffering homebuilders.

“Construction had kind of came to a halt, but it is coming back,” Mrs. Stackhouse said.

“My office is doing a lot of new homes right now. We have people who don’t want to wait six months or longer for those short sales to be approved. And builders are paying closing costs and offering things like free finished basements.”

Things weren’t always that rosy in Manassas and Prince William County. The market was so bad that home values fell further in 2008 than in any other jurisdiction in the area.

“We were at the forefront of all the short sales and foreclosures, the first ones to have that devastating flood,” Mrs. Stackhouse said. “We had to learn that process before anyone else.

“But we have also recovered faster than others. So we now have a steady market like we want it to be.”

Foreclosures and short sales remain large parts of the local housing landscape as 2012 nears. Will that dampen next year’s market?

“Our foreclosure percentages aren’t as high as other markets in the U.S.,” Mr. Heithaus said. “And the local economy has a lot going for it. Government spending is very good for real estate, and our unemployment rate is much lower than the national average. Mortgage interest rates remain very low. So that’s the ‘best of times’ part.

“On the other hand, it can be very hard to get a mortgage. Buyers have had a lot of issues with appraisers who are under increased scrutiny from banks and who have trouble finding comps.

“So we are cautiously optimistic about 2012. We are projecting the inventory will remain about the same, within 5- to 10-percent variance from 2011.”

Mr. Heithaus has good reason to be optimistic about inventory. The number of listings coming on the market was remarkably low in 2011. About 100,000 homes were listed from January through November, a drop of 10 percent compared with 2010 and far lower than 2006 when 173,000 homes were listed by the end of November.

“I’m feeling good about next year,” Mrs. Stackhouse says. “I’ve been watching a trend where the number of ‘regular’ resales [homes that aren’t foreclosures or short sales] is increasing.

“Plus home affordability is back in line, which is important for first-time homebuyers. As we get them moving, the move-up buyers will follow and everything will improve.”

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12 Responses to “The Washington Times: Ringing Out The Year on a Positive Note”

  1. You state that "Buyers were more active than they have been in five years". I don't think that's correct. Compared to 2010, the number of closed sales is down in just about every MetroDC county – MoCo and Fairfax down over 9%, DC down 3%, etc. PG was the only county that I found up from 2010 – 2%.

    What am I missing?

  2. MRIS_CMO says:

    Bruce, thanks for the comment … it's the reporter's quote that comes from the RBI Pending Sales Index — based on a two-year moving window on the housing market using new pending sales (signed contracts) and median sales price (closed sales). So it's a statistical assessment more than an actual headcount of buyers in one year compared to another.

    You're 100% right about closed contracts and of course, we have to factor in the periods of "induced" sales and closings from the Federal tax credit programs for First Time Buyers and then Extended Homebuyer Credit in the 2010 stats.

  3. [...] Check out a look into last year’s real estate improvements in our area. It is very interesting! Click Here [...]

  4. David Charron says:

    Excellent clarification John. Maybe we can ask Bruce take a few turns at interpreting some of the market dynamics. What do you think Bruce?

  5. John – agree that anomalies introduced by 2010 tax credit make comparisons difficult.

    David – I wish I knew what was driving the market. With lower home values, historically low interest rates and relatively strong employment, one would think that our market would be stronger than ever. Yet that's not what's happened. Here's what I think is going on:

    - Entry Level Market. The banking industry is smothering this segment. It's tougher for buyers to qualify, but then once qualified, you're likely dealing with a bank on the other end to get short sale approved. It's a double-whammy that make closing a sale in this segment really tough. Sales stats for entry level condos in 2010 in MoCo were especially abysmal. Banks – ugh.

    - Middle/Moveup Market. Cash and Confidence – or rather the lack of both – are working against moveup buyers. These buyers tend to be highly qualified, so financing isn't usually a problem. However, lower equity in their current properties make a move tougher. But lack of confidence is the biggest headwind, it think. If government can regain its sanity, and if the global financial market can go an entire month without a major crisis, I think that moveup buyers could come out in droves in 2012. I think there's a lot of pent-up demand here. We'll see.

    - Upper Brackets. This segment did much better in 2010 and 2011 from the bottom in 2009. Buyers with the cash and the means are getting good values, and I've seen a couple commentaries saying this is hedge against inflation. There's not a lot of other places to put a lot of cash if you have it.

    Different segments of the market are going in different directions. I'm hoping we'll see a market that's more 'normal' in 2012.

  6. MRIS_CMO says:

    Bruce, thanks for that … a level-headed assessment from the field trumps (no pun intended!) a view from my perspective any day of the week.

    I'm a 3rd gen real estate professional and instinctively concur with your points about confidence, fluidity of the financing process and (ugh) banks. They're not too happy about having all this real estate (and shadow inventory) on the balance sheet either so the sooner we get real on real estate with the Federal policymakers, the sooner we can get back to what we'd like to call "normal."

    Maybe we get Romney, Santorum etc. to stop talking about irrelevant distractions and having them discuss policies (a GI Bill for housing, if you will) that will make a tangible difference. It's up to the voters to make this dialogue known and press leaders for answers.

    Thanks for getting me amped on this topic today …. you made some great points and we hope to hear from you a lot this year! Cheers, John

    • So you would like politicians to "stop talking about irrelevant distractions and having them discuss policies that will make a tangible difference". Wouldn't that be a refreshing change of pace. You've definitely started the New Year with a ton of optimism.

      • MRIS_CMO says:

        I'm an eternal optimist, but do have a healthy distrust of the politicians, like most Americans. But it's up to us to make change happen. And housing is so important to the economy, it should be front and center on a partisan basis!

  7. MRIS_CMO says:

    Good Morning all — in today's WSJ there's a front page article about a white paper the fed has written dealing with its concerns over US housing policy. Here's a snippet from the article, for more go to http://www.wsj.com.

    The Federal Reserve, in an unusual foray into housing policy, expressed alarm over the battered home market and called for more aggressive action from Congress and other policy makers.

    Housing policy is outside the traditional purview of the central bank, but Fed Chairman Ben Bernanke and others are clearly worried that housing has stymied the effect of the bank's low-interest-rate policies.

    In a 26-page paper sent to top lawmakers on congressional banking committees, the Fed warned that tight mortgage- lending standards threaten to hold back the economy.

    The Fed also signaled support for more aggressive use of Fannie Mae and Freddie Mac to support a housing recovery. The firms, which don't make loans but purchase them from lenders, were taken over by the government three years ago and are overseen by a separate regulator, the Federal Housing Finance Agency, which has strictly interpreted its charge to limit the firms' losses.

  8. Karen Donaldson says:

    It was no lending standards that put us where we are. In addition to pay cuts, job lay-offs, higher food prices,higher gas prices,higher taxes….need I go on?

  9. suzanne Valentin says:

    Great to read all the comments.. Good to see interaction

  10. karen donaldson says:

    What are your thoughts Suzanne?

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