The median home price in the Washington area surged 27 percent to a record $371,000 last year, one of the biggest gains nationwide in a year in which a record 62 metropolitan areas experienced double-digit home price increases, the National Association of Realtors said yesterday.
Only five areas recorded gains greater than Washington, all of them exceeding 30 percent, including Las Vegas; San Bernardino and Sacramento, Calif.; and West Palm Beach, Boca Raton and Melbourne, on the east coast of Florida. Resort and coastal areas generally saw the greatest appreciation last year.
The most expensive area to live in continues to be San Francisco, where the median price jumped to $656,000 last year. Close behind the San Francisco Bay area was Orange County, Calif., at $627,500, and San Diego at $569,900.
Washington’s big increase last year brings it close to New York’s legendary high prices. The New York area’s median home price climbed to more than $400,000 for the first time last year.
“Homeownership has often been described as a great investment. In recent years, this has certainly been true,” said Mark Vitner, a senior economist with Wachovia Securities who thinks the housing market is showing some symptoms of a price bubble that is not stable.
The greatest possibility of a bubble appears to be in areas where appreciation has exceeded 20 percent, he said. Such sharp increases are characteristic of “areas where there is significantly less land available for residential development, or areas where restrictions have recently been put in place significantly curtailing home construction,” he said.
“Prices have surged” as a result of the constraints on building, combined with growing demand for housing because of an expanding population and job base, he said.
Many economists attribute the price explosion in the Washington area to the double whammy of growing housing needs and a limited supply of houses. Loudoun County ” once the fastest-growing residential community ” has enacted major new restrictions on housing development, while about one-third of Montgomery County is set aside as an agricultural reserve and is not available for housing.
Development also is not possible on the 40 percent of Washington property that is owned and controlled by the federal government, although the White House and the D.C. government recently opened negotiations over the possibility of finding new uses for surplus federal properties.
Maryland Gov. Robert L. Ehrlich Jr. also is seeking to open more state land for development, though his plan has met stiff resistance from the Democrat-controlled legislature in Annapolis.
Mr. Vitner said South Florida is seeing a rapid run-up in prices because it too is quickly running out of developable land.
“Areas of the country where land is not so scarce are seeing far less dramatic price gains,” he said. Atlanta, which for years had led the country in house construction, has few restrictions on development and saw prices increase on average by only 3 percent last year, he said. In Houston and Dallas, prices rose a barely perceptible 1.5 percent, despite rapid growth.
In part because of the tame price gains in much of the interior of the country, industry officials vigorously dispute assertions that the housing market is in a bubble.
Al Mansell, chief executive of Coldwell Banker Residential Brokerage in Salt Lake City and president of the National Association of Realtors, said the market has defied frequent predictions that a home price bubble would burst in the past four years.
“Although temporary price declines are always possible under the right conditions, people who were scared off by faulty predictions have missed out on the strongest housing market in U.S. history,” he said. In any case, houses are a good buy because interest rates are so low that “rents on comparable properties generally are higher than mortgage payments,” he said.
Mr. Mansell said prices will continue to be supported by a population that is growing faster than the supply of homes. People in their 20s and 30s who are buying homes for the first time are among the biggest generation in U.S. history, he said, and they are buying into the American dream like none before them.
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