- The Washington Times - Friday, June 14, 2002

Despite home prices that have risen dramatically throughout the Washington area, builders are managing to sell more homes than they did in 2001.

New-home sales for the first quarter of 2002 were up 3 percent compared to last year. That is a modest increase, but one that is quite welcome in builders' eyes after last year's slow sales.

Sales of new homes are up 16 percent in Virginia this year, but they are down 13 percent in Maryland. Two of the most expensive and popular counties Montgomery and Howard are the only Maryland counties that have posted an increase in new-home sales this year.

A look at the resale market reveals similar trends. So far this year, existing-home sales are up 3 percent compared to 2001. Once again, though, the home sales are different on the two sides of the metro area. Sales in Virginia are up 8 percent, while on the Maryland side they are down 2 percent for the first four months of the year. Frederick and Charles counties were the only Maryland jurisdictions in our area to post an increase in existing-home sales this year.

The difference with the existing-homes market, of course, is that last year was the most active ever in the Washington area. It is surprising to see sales this year increase at all over 2001 figures.

This active existing-homes market has caused area home prices to shoot up dramatically. That has allowed builders to increase pricing on their products without hurting their sales. Last year, the price per square foot for a new single-family home rose by double digits in nearly every county.

In Fairfax County, the price per square foot shot up to $169 in 2001, an increase of 11 percent over 2000. That happened even as the average square footage of new homes in Fairfax dropped by 200 square feet.

Many of the area's wealthiest households can be found in Fairfax County, but with average new-home prices of $532,000, even the affluent residents of Fairfax County can find it difficult to afford homes in their communities.

"Recent data show that housing cost increases are outstripping income increases in our region," says David Sylvester, housing programs manager for the Metropolitan Washington Council of Governments. "This problem is compounded by a severe shortage of housing to meet existing demand. We appear to be approximately 67,000 housing units short of current demand. Further, projected new housing development does not appear adequate to meet projected new job and population growth for our region."

When you have a metro area with a white-hot real estate market which has been the case in this area since 2000 housing supply becomes a critical issue. Eager buyers are purchasing almost anything that's for sale, and the competition they generate among themselves pushes home prices higher.

Today's expanding job market and shortage of available housing only mean that prices are likely to continue their upward climb. Finding affordable housing will become even more difficult.

The two area counties with the greatest increase in new-home prices used to be among the most affordable places to buy a new home. The average price per square foot rose 15 percent in Loudoun County last year and shot up 20 percent in Prince William County. At $137 and $124, respectively, these counties still are more affordable than closer-in Fairfax County, but not by much.

"When prices go up as much as they have lately, it makes things more challenging for us," says Ed McDonough, spokesman for the Maryland Department of Housing and Community Development.

"Many teachers and police officers cannot afford to buy homes in the communities where they work. This is especially true in expensive counties like Montgomery County, and it's an issue of real concern to [Maryland] Governor [Parris N.] Glendening."

The popularity of once-rural counties such as Loudoun, Prince William, Frederick and Charles is driven by buyers' need to find affordable housing. As home prices skyrocket in close-in communities, middle-income buyers have to look farther away from the District.

The most dramatic illustration is a comparison of Alexandria and Stafford County. Alexandria is a highly desirable inside-the-Beltway community where the average single-family home cost $190 per square foot last year. That's the most expensive square footage in the metro area, but people are willing to pay for that close-in location.

Stafford and Spotsylvania counties, on the other hand, are commuter communities much farther from the District than Alexandria. Although residents there have a much longer drive to work, many home buyers are finding the drive is worth it to save big on a new house. Single-family homes are being built for $97 per square foot in Stafford County and $95 per square foot in Spotsylvania County. The average new town house in these counties sells for less than $130,000. Compare that to an average cost of $412,000 in Alexandria, and you can see why outlying communities are growing.

There's a downside, too, however.

"St. Mary's County has one of the biggest housing crises in the area," Mr. McDonough says. "Many long-time residents still work in local, lower-wage jobs. The homes in St. Mary's have always been within their reach. These days, however, many new residents are moving in, folks with higher-paying jobs in the District or at Patuxent Naval Air Station. Home prices are rising as a result, and the affordable-housing squeeze is dramatic in St. Mary's."

The same thing is happening in other area jurisdictions. The homes in Frederick County, for instance, are much more affordable than those in Montgomery.

People who can't afford to live in Montgomery County often look to Frederick, but because these buyers can afford more expensive homes than the county used to offer, people who grew up in Frederick County often cannot afford to buy new homes there.

Builders raise prices to maintain profitability, but they also must remain conscious of their competition: the existing-homes market. If new-home prices rise too much, existing homes become even more attractive and are viewed as more affordable to buyers.

For example, at the close of 2001, the average single-family home in Montgomery County sold for $310,000. Half of the homes on the market in Montgomery were priced at $300,000 or less. That's expensive, certainly, but the average sales price of a new single-family home was $411,000 in 2001.

That's very expensive. Assuming a down payment of 10 percent, a buyer must earn about $135,000 per year to afford the average new home in Montgomery County.

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