- The Washington Times - Friday, January 25, 2002

Last year's real estate market was the busiest, fastest and highest-priced in Washington-area history. Despite the fears of industry observers, the terrorist attacks of September 11 didn't slow the market last year.

"It was like it never happened," says Alana Lasover, 2001 president of the Greater Capital Area Association of Realtors, which consists of Montgomery County and the District. "Of course, there was a huge effect on a personal level, but the attacks had a nominal effect from a business standpoint. The demand among buyers continued, even right after the tragedy."

Things really couldn't slow down in recent months, because the factors that made January through August so busy never went away: very low interest rates, huge increases in home values, plenty of buyers and a strong local economy.

"Even though the national economy is in a recession, we are not," says Stephen Fuller, a professor of public policy at George Mason University and a keen observer of local real estate. "The Washington area has slowed down some, but we have the lowest unemployment rate of any major metro area and a continuing shortage of highly educated professionals and technology-intensive workers. Nationwide, there are only three major metro areas with positive job growth Houston, Dallas and Washington, D.C."

Because of that strong local economy and the positive real estate environment, more than 100,000 existing homes were sold in this area last year. Never before had home sales reached such a level. In fact, fewer than 50,000 existing homes a year sold as recently as 1996.

When you add in new-homes data, total home sales in 2001 reached a tremendous 125,000.

Still, it wasn't an easy year for folks involved in real estate. Agents, lenders, inspectors, appraisers, title offices, settlement attorneys and home buyers were swamped all year long. Home sellers probably were the only people who had it easy. They saw the value of their homes skyrocket during the past three years, allowing them to reap nice profits.

They didn't have to wait long for those profits, either. Thanks to the most extreme seller's market on record, homes sold in days instead of weeks, often for more than the asking price.

"There used to be jokes about town houses in Gaithersburg, for instance," Ms. Lasover says. "A few years ago, you couldn't get rid of them. Now, they are easy to sell. They even sell quickly, especially if they are in good condition."

Other properties that used to be hard to sell, such as condominiums, sold with relative ease last year. In fact, there were a lot of condos to sell.

"In the old market (before 1998), a lot of people were stuck with condos that they couldn't sell," says Pat Jablonski, 2002 president of the Northern Virginia Association of Realtors. "To avoid losing money on a sale, [condominium owners] rented them out. Last year, however, they finally went up in value, and people began to sell them."

They sold quickly, too. Because there were so few homes from which to choose and because overall home prices were rising so sharply, home buyers who never would have considered a condominium were eager to buy one.

Home buyers may have had the hardest year of anyone in 2001. The competition to find and purchase homes last year was intense. The number of homes for sale was at a record low, yet buyer interest was extremely high.

For example, there were only 14,000 existing homes on the market in May 18 percent fewer than in May 2000. Yet more than 9,000 new and existing homes were sold that month, 11 percent more than in May 2000. Those factors made last May the most competitive month of 2001.

If you haven't been following Washington-area real estate for the past decade, it's hard to understand how revolutionary 2001 was. The most dramatic difference between the early 1990s and last year was the shift from a buyer's market to today's seller's market.

"In the early 1990s, we used to tell our listing agents that they really needed to baby-sit their sellers," Ms. Lasover says. "We'd say: 'Be sure to call them every month. Encourage them that a buyer would come along eventually. Let them know that you are working hard to sell their property, even though it is still on the market.'"

"These days, it is the buyer we are encouraging to hang in there," she says.

Preventing discouragement among home buyers was a tall order last year.

"The buyers were sometimes subject to panic. We had to keep them calm to prevent bidding wars," Mr. Jablonski says.

Bidding wars happened all over the Washington area. Attractive, properly priced homes in desirable neighborhoods attracted a lot of buyers. It wasn't uncommon for a seller to receive four, eight or even 12 offers for a home.

Buyers who were tired of repeatedly losing such competitions began adding escalation clauses to their bids, automatically raising their offer up to a set limit in order to beat other bids. Some buyers even took the drastic step of waiving some of their protections, such as the right to a home inspection.

Hopefully, that level of unhealthy competition won't be seen this year.

Early indications from the street are encouraging.

"It's more of an honest market," Mr. Jablonski says. "The market was so hot last year, it was almost uncontrollable. Some of those conditions won't go away homes that are priced right in good locations will still draw multiple contracts. So far, however, this market has been more manageable than last year was."

The 2002 market should be very strong, with plenty of buyer interest and low inventory. While it is unlikely to match the records set in 2001, that won't mean it's a slow year.

"It is always dangerous to compare anything to the best year," Mr. Fuller says. "This year will probably slow down to look more like 2000 which was a very good year.

"The job market will be even stronger in 2002 than 2001, primarily due to hiring among government agencies and defense contractors. War is good for this economy. And it's good for real estate, because it is bringing to town the kind of professional workers who buy houses. The jobs that were lost due to 9/11 were primarily low-wage workers, not folks who typically buy houses."

Many of those workers are still without jobs, and the high cost of living in the Washington area makes it even harder for them to recover.

Nevertheless, the strength of the local economy overall is encouraging, as is the spirit of the people who live in this community.

"Real estate agents have an incredible ability to turn the negative into something positive," says Ms. Lasover. "That was really put to the test on September 11, but I am very thankful that it happened on a Tuesday morning."

Tuesday morning is a unique time for Realtors. That's when virtually every real estate office in the region holds a weekly sales meeting.

"It was so special to be together on such an awful day," Ms. Lasover says.

"Everyone just sat there. No one left. No one went to their open houses or their appointments," she says. "And that was all right. The camaraderie of being there [with] your friends and co-workers gave everyone a sense that we would be OK, because we were all going through this together."

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