- The Washington Times - Thursday, December 9, 2004

This year, the Washington-area real estate market has exceeded expectations, again. For the seventh consecutive year, this region has broken records and statistical boundaries. So, once again, many are asking: What will happen next year? Could the strongest seller’s market on record continue? Will home prices finally calm down? Might it be possible to buy a home without fending off five other buyers?

Or will all of the things that have made 2004 such a difficult market for buyers — and a profitable one for sellers — remain true in 2005?

“Absolutely,” says Ruth Dickie, manager of Long & Foster’s Bethesda Gateway office. “Right now, we are seeing the same thing we were at the end of 2003 — a shortage of listings. There just aren’t enough homes on the market to satisfy demand.”

Listings, the homes listed for sale with area Realtors, have been declining since 1997. Back then, 33,000 to 38,000 homes were on the market on a given day. Now, there are fewer than 12,000 homes on the market.

“We are continuing to encourage sellers to put their homes on the market now, rather than waiting until January,” Mrs. Dickie says. “The market is very strong right now, even for December.”

You might think the decline in listings during the past seven years means no one wants to sell anymore. Not true. In fact, more area homes have been sold this year than ever.

This imbalance between a high demand for homes and a limited supply is the reason buyers have been fighting so fiercely for homes in popular areas. And that competition is the reason home prices have shot up so dramatically. If these two factors — plenty of buyers vying for a scarcity of homes — are present next year, it will go a lot like this year.

“Real estate is local, and it is driven by local factors, not the national economy. The strength of an area’s real estate market depends on two things: consumer confidence and population growth. And when you have both of them, anything can happen,” Mrs. Dickie says.

So, why is consumer confidence high in the Washington area? Why is our population growing so fast that we have a housing shortage?

In a word, jobs.

In October, the Washington region topped a list of 274 metropolitan areas for job growth. According to the U.S. Department of Labor, employment in this region grew by nearly 74,000 in the preceding year, more than any other metropolitan area.

The region was tied in October with Orange County in California for the lowest unemployment in the nation, just 3.1 percent.

The national unemployment rate was 5.1 percent.

The technology, service and defense sectors are all booming in this area, and many of the jobs being created in these industries are for educated professionals. These are the kind of employees who can buy the expensive properties in our region.

If the frenzied real estate market of recent years has been a result of high consumer confidence and expanding employment, can we expect those forces to continue in 2005?

“I don’t think there’s any reason to expect them to change in the next year,” says Roger Stough, professor of public policy at George Mason University and an expert on the region’s economy. “These are pretty resilient forces. They will be with us for a while.

“Maybe if the terrorist-response craze calms down and people say we should not keep putting so much money in the Department of Homeland Security, maybe then we would see some slowdown in federal expenditures,” Mr. Stough says.

Even if the government sharply curtails spending in the near term, much of the population growth in recent years has yet to be absorbed.

Demand for housing has been building, so it seems unlikely 2005 could be a cooler market than this year has been. Any slowdown, the market watchers say, is probably some years away.

“The only thing that could abruptly change things in the short term would be something that we aren’t anticipating, something that would have an impact on the location of area employers and result in a population shift,” Mr. Stough says.

The recent increase in area jobs has not been spread evenly. Back in 1970, 42 percent of area jobs were in the District. Due mostly to population growth in Maryland and Virginia, the District’s share of area jobs has dropped ever since. Today, only 21 percent of the area’s jobs are in the District.

The remaining 79 percent are not equally distributed between Maryland and Virginia. Even though they had a roughly equal share of jobs in 1970, Maryland has experienced far less job growth than Virginia in the past 34 years. Virginia now employs 45 percent of the area work force, compared with 34 percent in Maryland.

Jobs and housing are, of course, closely related. Until just a few years ago, more area homes were sold each year on the Maryland side of the District than on the Virginia side.

However, Virginia’s rapid growth in service, technology, telecommunications and defense jobs has caused a shift in the balance of the housing market. Loudoun County, for example, is the fastest-growing county in the nation, according to the U.S. Census Bureau.

The Dulles, Interstate 95 and I-66 corridors have been expanded in the past 20 years, and there’s no reason to expect this to stop.

“I expect we’ll continue to pack housing in ‘edge cities,’ such as Tysons Corner, Reston and Rockville,” says professor Stough. “A lot of people are coming into these places to work, and they need somewhere to live. You cannot believe how much housing has been going in around the Tysons area, but more is needed.

“We’ve been doing a lot of infill (building homes in vacant lots in already developed areas), and there is still some more room for that,” Mr. Stough says. “But the demand is so high near these employment centers that there is great potential for building more homes and services near Metro stations, for example. There is a need, and a cost benefit, to paying even as much as $100,000,000 or $200,000,000 for a parcel of land and putting up condominiums to house workers and reduce traffic. I certainly would be thinking in that way if I was in the housing business.”

Because there has often been resistance to high-density projects such as these, builders have been forced to meet the demand for housing by building in communities far from the District.

“Expect to see continued demand on the region’s margins, clear out to the Shenandoah Valley,” Mr. Stough says. “Growth out there will continue, even more so as it becomes more possible to work remotely one or two days a week. Besides, some people really like the idea of living in the woods, and there is a large part of population who can’t afford to buy a house anywhere else.”

Area home prices rose by double digits in 2002, 2003 and 2004. As a result, many middle-class families can’t afford more than a condominium in places such as Arlington and Montgomery counties.

“It’s been hard to watch,” Mrs. Dickie says. “Some people thought prices would eventually fall, and many have paid dearly. I’ve seen people wait two years to buy, hoping prices would go down. Now prices are at least 20 percent higher, and they can’t buy anything.

“We are not encouraging buyers to delay, not at all,” she says. “But, to tell you the truth, this has been a problem for us. It can sound very self-serving when an agent urges someone to buy sooner than later. It is sometimes hard for an agent to say those words and be believed, but we are really looking out for them.”

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