- The Washington Times - Friday, January 1, 2010

Last year saw significant improvement in the Washington-area real estate market. Sales of existing homes were up 22 percent compared to 2008. Inventory fell by 25 percent. Competition among buyers was strong enough that prices even rose a little bit in some jurisdictions.

According to data from the Metropolitan Regional Information Systems Inc. (MRIS), nearly 90,000 existing homes were sold between January and November of last year. That’s the highest number since 2005 - the last year of the ill-fated real estate boom.

Although sales were stronger last year, that didn’t mean things were any easier.

“Every case has been fraught with anxiety,” says Ruth Dickie, a manager at a Long & Foster Real Estate Inc. office in Bethesda, Md. “Buyers are not terribly confident these days, and that makes every part of the process more difficult. They question everything. And the lending institutions have taken a big step into the past to where everything has to be verified and then verified again, and then they want another appraisal before settlement.”

David Rathgeber of Your Friend in Real Estate LLC in Potomac Falls, Va., agrees.

“There were years when everything was a revolving door,” he says. “Transactions usually went smoothly. Now, however, there tends to be a lot of problems.”

It’s not surprising that lenders are being more careful - it was loose lending guidelines that pushed sales and prices unreasonably high from 2002 to 2005. When the easy mortgages dried up, the market slowed, inventory rose and prices fell.

Area home prices fell especially hard in 2008. The median sales price for homes sold in 2008 in Virginia’s Prince William County was 39 percent lower than it had been in 2007, according to MRIS data. Fairfax County, Va., was down 29 percent. Maryland counties didn’t do much better, with the median sales price in Montgomery down 11 percent and Prince George’s down 14 percent.

Those price drops were painful, but they had a salutary effect on home sales. The steep drop in prices in Prince William County was one reason home sales there jumped by 127 percent in 2008.

Other jurisdictions followed suit, mostly in Virginia. However, in 2009, sales rose throughout the Washington region. Sales during the first 11 months of 2009 were up 22 percent compared to the same period in 2008.

Prince George’s County experienced in 2009 the kind of boost that Prince William County enjoyed in 2008. Sales in Prince George’s were up 74 percent last year, more than in any other jurisdiction in the area.

Buyers are attracted to the affordable homes in counties such as Prince George’s and Prince William. Yet that has made the lower-priced homes the hardest ones to buy.

“Right now, the $200,000-to-$300,000 market is attracting a lot of investors who see a great buying opportunity these days,” Mr. Rathgeber says.

Buyers who are shopping in this price range are frequently frustrated because investors typically can pay cash for a home and close quickly. That makes a conventional offer to buy less attractive to a seller.

“Then there’s the $300,000-to-$700,000 market, which is about half the homes on the market in Northern Virginia. It’s active, too, but the higher you go in price, the cooler the market is. Still, I have seen multiple offers on homes more than $1,000,000. So, nothing is really dead - there’s movement on every level.”

Besides low prices, buyers also have been spurred on by low mortgage interest rates and the federal tax credits for home purchases. However, those tax credits are only good on purchases made by April 30.

Low interest rates could go away, making a home purchase more expensive. On a $200,000 loan, the difference between a 4 percent rate and a 6 percent rate is more than $200 per month.

“The big story for next year is probably going to be higher interest rates,” Mr. Rathgeber says. “When the Fed is no longer buying mortgage-backed securities the way they are now, rates are probably going to go up. When they rise, you may see a flurry of activity among buyers who don’t want to miss the lower rates.”

Higher interest rates don’t cause everyone to stop shopping for homes, but they might move some buyers to look at more affordable communities.

Nearly 60 percent of last year’s home sales occurred in the inner jurisdictions of Montgomery and Prince George’s counties in Maryland, the District and Virginia’s Arlington and Fairfax counties and Alexandria.

The remaining 40.7 percent of sales were from Maryland’s Anne Arundel, Howard, Charles and Frederick counties, along with Loudoun, Prince William, Spotsylvania and Stafford counties in Virginia.

In 2008, the inner jurisdictions captured just 55 percent of sales because sales in Prince William were so strong.

Sixty percent is more typical of what we’ve seen since 2004. Before that, the outer jurisdictions weren’t as developed and took a smaller share of the region’s sales. If you go back to 1993, you’ll see that the outer jurisdictions captured just 30 percent of sales, compared to the current 40 percent.

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