Prices up in spite of slowdown

Despite the recent slowdown in the Washington metropolitan area real estate market, home prices have not fallen.

Six months ago, many were fearful that we were experiencing a “bubble.” Some predicted that when the market slowed, the bubble would pop and prices would tumble. Homeowners would lose heaps of equity if property values fell.

It didn’t happen.

Home prices in November were up 14 percent to 29 percent compared to last year, a rate of increase even higher than we saw last year.

Outside the Washington area, Baltimore saw an even more dramatic increase, with prices rising 42 percent compared to last November.

I need to caution you against drawing too many conclusions from the November data, however. Monthly data is susceptible to fluctuations caused by the sale of a few very expensive or very inexpensive homes.

Those fluctuations even out in annual data, making 12-month data preferable for serious analysis. For this reason, I have presented both annual data and monthly data.

The chart at far left shows median prices for the entire year of 2004, compared to 2003. Next month, we’ll know how much home prices rose throughout 2005.

However, looking simply at November prices, in the chart at immediate left, it is easy to see that home prices rose quite a lot in the month-to-month comparison.

It is encouraging to see that gains in the spring months weren’t eroded by the market slowdown in the fall.

Will prices rise again next year? Probably — but I expect they will go up less than they have during the past few years.

Affordable jurisdictions such as Baltimore, however, probably will continue to see high rates of appreciation. Buyers are being drawn anywhere that has reasonably priced homes because even condominiums have climbed out of the reach of many buyers in markets such as Northern Virginia, Montgomery County and the District.

Contact Chris Sicks by e-mail (csicks@gmail.com).

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