- The Washington Times - Friday, February 16, 2001

Do you want to buy a new home in 2001? Be prepared to pay a lot and to shop pretty far outside the Beltway. Also, don't expect to move in anytime soon.

After an extremely busy 2000, the Washington-area real estate industry is wondering how 2001 will look. It's hard to imagine a more competitive market than the one just finished, but low interest rates seem to be fueling a continuation of last year's sales boom.

2000 was a great year for resales and a good year for new-home sales. Existing-home sales were up in every county and city in the area last year, but new-home sales were down in two-thirds of the metro area. Prices rose for both resales and new construction because of limited supply and great demand. New-home prices went up much more than resale prices, making resales a better deal.

Overall, builders sold 12 percent fewer homes in 2000 than in 1999. That doesn't mean it was a bad year for builders they still sold nearly 27,000 homes but it was one of the slowest in a decade.

What does all this mean for the building industry in 2001? More to the point, what do these facts and figures mean to you as a home buyer?

Simply put, it all means you will pay more for a home in 2001 and wait quite a while to move in.

"Prices went up a lot last year," says Dee Minich, senior vice president for sales and marketing at Washington Homes. "Obviously, demand was the driving force. In our Virginia market, we raised prices quite a bit in our communities some models went up as much as $50,000 or $100,000."

That sounds like a lot, but builders such as Washington Homes aren't being greedy. Many builders were forced to keep prices low in the early 1990s when the market was slow. Now that times are good again, prices are rising because of demand and the cost of building.

"The price of land has skyrocketed," Mrs. Minich says. "County impact fees, land development, materials and labor all of these have shot up recently. In particular, it's very difficult to find good labor these days. All the builders are trying to hire the same people."

For the past three years, residential and commercial builders have struggled with a shortage of qualified subcontractors. These are the plumbers, electricians, bricklayers and painters who do much of the work on a new home. In the worst of times, homes have sat unfinished for want of labor.

"Today, anyone who has a trowel, a wheelbarrow and a brother is a mason, and anyone with a hammer is a carpenter," says Thom Wilson, president of Waterford Homes. "Unfortunately, that often has an effect on quality."

It also has an effect on delivery schedules. Most builders don't like to make a buyer wait more than three or four months for a home to be finished. Last year, however, many buyers waited six, eight or even 12 months. Many builders were sold out for the year by March 2000.

Most builders "already had a backlog of six months going into 2001," says Debbie Rosenstein, president of Rosenstein Research Associates. "So sales this year will probably be even slower than last year, but not because people don't want to buy. Builders just can't keep up with the demand, and that pushes prices up further."

Builders have found for the first time in a long while that they can increase prices without hurting their sales. Prices rose most dramatically in Northern Virginia last year. The average base sales price for town houses rose from $189,567 in 1999 to $206,773 last year in six Virginia counties and Alexandria. Single-family-home prices increased almost 13 percent, from $280,781 to $315,709.

The biggest price increases last year were in Loudoun County, where town-house prices shot up 25 percent, from $161,612 to $200,307 in 2000, and prices for single-family homes jumped from $280,369 to $333,419. The popularity of this once-sleepy suburban county has caused Loudoun officials to begin passing restrictive zoning regulations, which probably will cause prices to rise further.

Yet even prices like these don't stop buyers.

"Consumers haven't turned away, despite significant price spikes," says Mark Stewart, account executive at Meyers Housing Data Reports in Washington. "The current price in-creases are the result of strong demand, dwindling supply and the builders' desire to allow construction to catch up with sales."

So far this year, builders are reporting record turnouts at grand openings and open houses. For some, the demand is more than they can handle.

"Some builders are literally rationing lots," says Brenda DesJardins, president of New Home Marketing Services. "They will tell their staff: 'We only want to sell 30 lots in this community this year,' even though they have more available. They need to think about their production schedules, and they need to make sure they have enough lots for the coming years."

Especially in crowded markets such as Fairfax, Arlington and Montgomery counties, available land is a very desirable commodity. A builder who doesn't look forward can soon put himself out of business.

"Most companies plan five to seven years out," Ms. DesJardins says. "If they don't see a lot of new land being approved for construction, they need to start slowing sales down now."

Available land isn't as much of a concern in the outlying counties, of course, and that is where most new homes are being built. Counties that touch the Beltway account for only 41 percent of new-home sales, down from 53 percent in 1992.

Affordability, of course, is the driving force behind this wave of outward migration. The most graphic illustration is Alexandria vs. Charles County, Md. Alexandria is a highly desirable inside-the-Beltway city where the average single-family home cost $221 per square foot last year. That's the most expensive square footage in the metro area. Charles County, on the other hand, is a quiet, rural setting that had the least expensive homes, at $91 per square foot.

Rising prices make builders happy, but they also make existing homes a much more affordable option for buyers. For example, at the close of 2000, the average single-family home in Fairfax County sold for $410,000. As high as that sounds, the average base asking price before any upgrades for a new single-family home was $505,000. That surely had something to do with the fact that new-home sales fell 28 percent in Fairfax County last year, while sales of existing homes rose 29 percent.

A lack of affordable choices also slows new-home sales. The days of a brand-new starter home are history in most counties, and even more moderately priced new homes are in limited supply.

"If you are looking for a new single-family home between $250,000 and $350,000, you won't find it in many markets especially close-in," Ms. DesJardins says.

That's why people keep looking farther out to find the home they want at a price they can afford.

"It's a very simple formula: Job growth equals new-home growth," Ms. DesJardins says. "As Tysons became an employment center, the Dulles area became a place to commute from. But now the Dulles area is replacing Tysons as a job center, so people are moving even farther out, to Leesburg and even Fauquier County."

Washington Homes is returning to Fauquier County after a long absence. When builders return to distant markets, that always is a sign of a hot market.

"When the market got soft in the early 1990s, we pulled out of Fauquier and back to Northern Virginia," Mrs. Minich says. "Now we are seeing Fauquier growing again, and there's also a surge of activity in Stafford County."

So, from a buyer's perspective, 2001 probably won't be much different from 2000: high prices and long waits. For consumers who really want a new home and don't mind living in the country, however, new communities are opening up all the time, and builders are ready to sell.

"I think 2001 is going to be a great year," Mrs. Minich says. "What we are hearing, more than anything, is that things are good because interest rates are down. That means consumers can buy more now with their dollar, so many feel the time is right to relocate."

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