- The Washington Times - Friday, January 24, 2003

Last year's real estate market was the busiest, fastest and highest-priced in Washington-area history.

The same sentence, precisely, can be found in the Friday Home Guide in January 2002, referring to the 2001 market. Yet the sentence remains true one year later.

"I've never seen anything like the past two years," says Dale Mattison, 2002 president of the Greater Capital Area Association of Realtors, which includes Montgomery County and the District. "It has been a phenomenal experience, particularly for someone who has been in real estate for 28 years in this area."

Last year also was rather difficult for anyone involved in the real estate industry. Anytime 130,000 new and existing homes are sold in one year, everyone is bound to be hopping. Title companies, settlement agencies, lenders, inspectors, appraisers and even the guys who put the "For Sale" signs in the yards all of them were swamped last year.

"The pace of the market necessitated being available, accessible, online and on-site, 24/seven," Mr. Mattison says. "While there are certainly some positive aspects to such a market, there are some real challenges, too."

Many area real estate offices increased their staffing last year to meet the demand. Mr. Mattison's association grew last year from 6,000 members to 7,100. That's 18 percent growth, and the group is the largest it has ever been.

"The numbers at the National Association of Realtors also rose significantly," Mr. Mattison says. "It truly was a great year for the entire industry, nationwide."

The Washington area fared even better than most, however.

"Although real estate was very healthy around the nation, when it comes to home price growth, the Washington area truly stands out," says Lawrence Yun, senior forecast economist at the National Association of Realtors. "Looking at data from the first three quarters of 2002, it appears we may have reached 20 percent price growth last year."

Appreciation like that only made the market hotter in 2002, as homeowners put their properties on the market to reap the windfall, and first-time buyers jumped into homeownership to get a piece of the action.

The leap in home prices also fueled last year's growth in outlying areas, including Loudoun, Prince William, Spotsylvania and Charles counties.

Home sales were up by 11 percent or more in those counties which is remarkable considering that 2001 resales rose by 15 to 35 percent in those same areas. Nearly 10,000 existing homes were sold in Prince William County alone last year, four times the county's 1995 sales of just 2,500.

Buyers were drawn to such outlying communities because home prices inside the Beltway were rising so quickly. For example, the average price for a single-family home in Arlington County last month was $465,000. Many buyers who couldn't afford that bought single-family homes in counties such as Spotsylvania instead. There they paid an average of $197,000. Town houses in Prince William County were going for an average of $181,000 last month.

David Rathgeber, a Realtor with Century 21-Laughlin, experienced firsthand just how stunning appreciation was in Arlington County last year.

"A young lady I was working with bought a condominium in Arlington in March 2001 for $112,500," Mr. Rathgeber says. "In September 2002, we sold it for $165,000. That's 47 percent profit in only 18 months."

What makes home prices go up that much?

"In simple terms, it is multiple buyers making offers on a single home," Mr. Rathgeber says. "One offers more than the asking price and wins the contract. Bingo, the price of that home just went up. That's the only thing that makes home prices move."

The only thing that causes buyers to compete like that is supply and demand. The market was flooded last year with eager buyers motivated by low interest rates. The number of homes available for them to buy, however, was at a 15-year low.

"When the market is being pressured from both sides like it was last year, something has to give," Mr. Yun says. "And what gave was home prices they moved in a big way." What can we expect in 2003? Could homes continue to appreciate at the same pace as last year, and will buyers be as frustrated as they were in 2002?

"Once again, I will predict that this year will be slower than last year," Mr. Rathgeber says. "I know that's what I said at the beginning of 2002, but this time I think I'll be right."

Although low interest rates could keep demand high among buyers, home shoppers should have an easier time in 2003 because the inventory of homes for sale is already beginning to rise.

"I expect inventory to be 10 to 15 percent higher than it was in 2002," Mr. Rathgeber says.

If that's true, buyers will welcome the change.

"It was extremely frustrating for buyers last year, who felt they had no negotiating ability, being forced to pay asking price or more in order to win a contract," Mr. Mattison says.

"Although I would love to be proved wrong, I don't believe last year's record-setting pace can continue in 2003," he says. "I can't imagine interest rates going up considerably, which will keep demand strong. But we are already seeing some softening on the upper end of the housing market probably caused by the economy."

It could be difficult to see any slowdown in the next few months, however. Sales in the Washington area are always strongest between now and May.

"The spring will be very difficult for buyers, so they should avoid it if they can," Mr. Rathgeber says.

Even if 2003 is slower than last year was, there seems to be consensus in the industry that this year will be a strong seller's market not a buyer's market by any means. In fact, a buyer's market is still a long way off.

Before that can happen, demand among buyers will have to slow significantly, and homes will have to sell more slowly. Buyers will welcome the change when it comes, but Realtors probably will not.

"A seller's market is always easier on Realtors than a buyer's market," Mr. Rathgeber says. "In a buyer's market, you spend a lot of your time visiting homes with your buyers. There are just so many to choose from, so much driving around to be done.

"Meanwhile, your sellers' homes are languishing on the market for six months and you have to reassure them all the way through it. Selling a home took much longer in the buyer's market of the mid-1990s. Back then, I'd have 20 listings for sale at one time. Now, I only have three active listings at a time, but I'm selling more properties each year than I ever did before."

"Last year was remarkable in that way," he says. "Absolutely remarkable."

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