- The Washington Times - Tuesday, August 14, 2001

Home prices in the Washington area surged by 18.6 percent in the past year, making it second only to Sacramento, Calif., in house appreciation nationwide, the National Association of Realtors reported yesterday.

The median price of existing homes sold in Washington in the spring quarter rose to $206,700 from $174,300 a year earlier, according to the report, which covered 125 metropolitan areas. Median means half the houses sold above that price and half below.

The increase was nearly three times the national rate of 6.4 percent, in a sign that the local housing market and economy are doing substantially better than the rest of the country.

"There's no question the housing market has been doing unusually well," despite the past year's technology bust and sharp economic slowdown, said Bruce Bartlett of the National Center for Policy Analysis, an economic think tank.

In Washington, the strong gains have been felt broadly, from affluent neighborhoods to working-class enclaves, he said, and have surprised analysts such as himself who had expected the housing market to cool in the wake of the dot-com crash and the technology recession.

"We have a lot of dot-com types in Northern Virginia. I don't live too far from AOL, and the tech crash didn't have any effect at all on my neighborhood" in Great Falls. He said his own home has almost doubled in value to nearly $1.5 million in recent years.

A rental property Mr. Bartlett owns in the Del Ray section of Alexandria also jumped suddenly in appraised value from $230,000 to $300,000 in the past year. "In one year, I've made up for all those years I didn't have any increases at all," he said.

Many Washingtonians are cashing in their gains by selling their homes or tapping into their home equity wealth through cash-out refinancings and home equity loans, he said.

"When your house price goes up, that's money you can tap into," he said. "I'm going to take over $100,000 out" and put it into more liquid investments for retirement, he said. "The money's just sitting there, so why not do something with it?"

Economists say the unexpectedly strong housing market has been a secret strength of consumers in the faltering economy this year. The big surge in home equity wealth has buoyed confidence and provided a supplement to income that consumers have drawn on to maintain their spending habits despite rising unemployment and debt.

Locally, the buoyant home sale and construction market has helped to keep the economy growing faster than the national economy, where growth fell to a 0.7 percent annual rate in the second quarter.

While unemployment has risen nationally to 4.5 percent from 3.9 percent last fall, it has held steady in Northern Virginia at a low 1.7 percent and has dipped in the Maryland suburbs to 2.6 percent.

Construction jobs have been one of the strongest growth areas locally.

"Home-price appreciation shows no sign of abating" and is acting as a strong inducement for consumers to spend, said Joseph Abate, economist with Lehman Brothers.

"A change in home values has a much more significant impact on consumption spending in the short run than changes in equity wealth," he said, arguing that it is an important reason consumer spending has held up despite an overwhelming loss of $5 trillion of household wealth in the stock market in the past year.

In the Washington area, the government's strong presence has helped to buoy incomes and the real estate market, cushioning the region from the national downturn, said Mark Vitner, vice president of First Union Corp.

The District, for example, is not a high-tech center and benefited little from the 1990s technology boom. But it is doing nicely now that government spending is on an upswing, and its home sales market is booming.

"Northern Virginia is holding up better than most other high-tech areas," Mr. Vitner added, because growth in defense and government contracting has offset layoffs at Internet-related businesses.

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