- The Washington Times - Friday, March 21, 2003

If you are thinking about a new-home purchase this year, you need to know two things: You're going to pay a lot of money, and your commute probably will increase. New-home prices jumped dramatically last year, and most of the Washington area's homes were built in outlying counties, including Frederick and Charles in Maryland, Prince William and Stafford in Virginia.

The popularity of these once-rural counties has been driven by the buyers' need to find affordable housing. As new and existing-home prices have leapt in close-in communities, middle-income buyers have had to look farther from the District.

For example, the average single-family home in Fairfax County cost $182 per square foot last year. That's the most expensive square footage in the metro area, but people are willing to pay it so they can have a short commute to work and community activities.

Stafford and Spotsylvania counties, on the other hand, are commuter communities farther from the District than Fairfax. Although residents there have a much longer drive to work, many buyers are finding the drive is worth it to save big money on a new house. Single-family homes are being built for $108 per square foot in Stafford County and $107 in Spotsylvania County. You can buy a new town house in Spotsylvania County for $145,000. Compare that to a median cost of $690,000 in Arlington for a town house and you can see why counties touching the Beltway account for just 36 percent of new-home sales, down from 53 percent in 1992.

"Recently, a lot of builders have been expressing interest as far out as Jefferson [in West Virginia], Fauquier, Culpeper [Virginia] and Washington [Maryland] counties," says Peter Bisset, regional sales director for the Meyers Group. "Builders are very interested in areas like these because they need land to build on. Some area firms have even requested research on York, Pa."

Although the drive from York to the District may seem ridiculous, the steady rise in telecommuting makes it more realistic for buyers to consider. Mr. Bisset, for example, lives in Loudoun County. His office is in Georgetown, but he makes the drive only once a week.

Land isn't the only reason construction has shifted farther from the District.

"Jurisdictions have to struggle with where to put all the roads, schools, police, fire departments all the infrastructure that the public needs must be expanded when more new homes are built. Adding these services takes time and money," Mr. Bisset says. "Outlying counties are attractive to builders because infrastructure is less expensive, and builders face fewer restrictions and red tape."

Builders are going to have to continue looking for available land wherever they can find it because Washington is facing a severe shortage of available housing perhaps as much as 100,000 units.

In a recent report titled "The Washington Area Economy: Resilience and Recovery," George Mason University professor Stephen Fuller said this shortage is going to continue in the near future.

"With housing supply projected to grow more slowly than the employment base over this decade and beyond, this growing housing shortage will result in higher housing costs and increased commuting distances," the report says.

This area's white-hot housing market is unusual today. Other metropolitan areas have watched housing sales slow and prices stabilize as the national economy has cooled. Atlanta, for instance, was once the nation's biggest new-homes market. The country's economic slowdown hit Atlanta hard, however, and the real estate market there has withered.

Why has the Washington area fared better? Mr. Fuller explains, "The Washington area economy is not like other metropolitan area economies. While it is not immune to the impacts of the business cycle and other national and international conditions, it possesses an economic base that substantially protects and buffers it from the full force of these external economy-shaping conditions. These base conditions… helped to sustain its growth in 2001 while the national economy was experiencing a weak recession spread over three quarters, and they helped the Washington area economy to out-perform the national economy in 2002.

"With above-average federal spending in combination with a healthier economy across all sectors, both locally and nationally, the Washington area economy is expected to achieve a 3.7 percent increase in gross regional product (GRP) in 2003, up from 3.1 percent in 2002, and it also will outperform the national economy, which is projected to grow 2.9 percent in 2003."

If the professor is right, this area's already-tight housing market will remain competitive and grow increasingly expensive in coming years. That will force a continued migration to more affordable counties farther from the District.

The only problem with this is that outlying communities don't always remain affordable.

Some of the area's largest price increases are to be found in Frederick County, where single-family home prices shot up 28 percent in 2003, from $385,400 to $554,900. Town houses jumped from $142,000 to $181,000.

This has happened because people who can't afford to live in Montgomery County often look northwest to Frederick. Because those buyers can afford more expensive homes than longtime residents of Frederick County, people who grew up there often cannot afford to buy new homes there.

Builders need to raise prices, of course, to maintain profitability, but they also must remain conscious of their competition: the existing-homes market. If new-home prices rise too much, existing homes become even more attractive and affordable to buyers.

For example, at the close of 2003, the average price of a single-family home in Montgomery County was $463,000. That's expensive, certainly but half of the homes on the market in Montgomery were listed for $350,000 or less.

That's a lot less than the average sales price of a new single-family home: $575,000 in 2003. Assuming you make a down payment of 10 percent, you need to earn about $145,000 per year to afford the average new home in Montgomery County.

Builders are inclined to look at the costs per square foot. Not only are prices for land boosting the average home price, but houses are larger these days, which increases the price even more. In 2002, the price per square foot for new homes rose by double digits in nearly every county. In Alexandria, the price for a new town house shot up $100 per square foot last year, an increase of 54 percent.

Town house prices rose more than single-family prices last year, probably because so many buyers are looking for something they can afford. The cost of new single-family homes is so high, many buyers want a big town house instead. Builders, capitalizing on that trend, have also increased the size of town houses.

"A normal size for a town home used to be 20-by-36 feet," Mr. Bisset says. "Today, 24-by-40 and even 28-by-40. We're talking about 3,000 square feet for some of these town homes, which isn't much different than a single-family home."

Some of the area's biggest town houses are being built in Fairfax County. The average square footage for a town house there was 2,234 last year, an increase of 200 square feet over 2001. Buyers also paid more per foot 17 percent more than in 2001. With a median base price of $342,000, even these town homes remain beyond the reach of many.

Nevertheless, they are still more affordable than detached homes. Even the affluent residents of Fairfax County can find it difficult to afford new single-family homes when the median base price is $561,000.

"I was out last weekend, and the rise in cost has been phenomenal lately," Mr. Bisset says, "but I noticed that the homes have also become nicer as they've become more expensive. Corian countertops, crown molding, wood floors instead of vinyl these things are pretty standard today."

Such luxury features used to be options builders sold at additional cost, but as houses have escalated in price, buyers have come to expect more in their new homes.

"It makes sense from the builder's perspective, because it is very cost-effective to add on such things," Mr. Bisset says. "For instance, if a builder spends $400 on crown molding, he'll raise the home price $1,000."

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