- The Washington Times - Wednesday, February 18, 2004

The Washington area’s economy has contributed to a housing crunch, and it’s so tight that many prospective buyers are being squeezed out of the market entirely. Experts say that while sellers are taking record profits, buyers are left to sort through a limited inventory of homes and prices that are going through the roof.

The Washington area is creating 50,000 new jobs per year, but, at the same time, developers are building only 20,000 new homes a year, according to industry experts. In this classic case of supply and demand, home prices inevitably rise.

The number of new jobs in the Washington area grew faster than in any other metropolitan area in the country from 1996-2001, according to a report by John McClain and Stephen Fuller of the Center for Regional Analysis at George Mason University.

The study also mentions that housing did not keep pace with the job growth.

“The statistics are — in Washington, just last year, we needed 10,000 more homes than what was built,” says Steven Alloy, president of Stanley Martin Homes, who also serves as president of the Northern Virginia Building Industry Association.

The Washington region has the largest demand and shortest supply of homes nationwide, so the housing crunch here is worse than in New York, Florida or California, he says.

“This area has a booming economy and great quality of life, so people naturally want to live here,” says Mr. Alloy, whose Reston-based company builds homes in Virginia and Maryland.

“The housing market is hot because the D.C. area is so successful,” says David Maplesden of Long & Foster Real Estate in Takoma Park.

In addition to job growth, Washington-area residents also enjoy the highest incomes in the country, the lowest rate of poverty and an abundance of educational, cultural and recreational opportunities, according to the George Mason University Housing Study.

“One of the attractions to the Washington region is that it is comprised of a unique mix of employers,” says Realtor Robbi Kimball, also of Long & Foster in Takoma Park.

She adds that the employers “are somewhat insulated from economic downturns, such as federal, county and local governments, military bases and their civilian contractors and multinational agencies and companies whose client base is policy-focused.”

All of the region’s attractions contribute to the housing crunch. And it’s only getting tighter, observers say.

Stanley Martin Homes solicits for building lots on its Web site. W.C. & A. N. Miller Cos., based in the District, has been buying estates on which to build several high-end homes. These are larger lots that originally were used for just one home.

Rapid growth has prompted some communities to call for new or revised planning, zoning and environmental policies to restrict residential development, according to the study by George Mason University.

“The supply will worsen when we finish in 2004,” Mr. Alloy says. “It’s hard on consumers who don’t have homes. In each area, we’re telling people to move next door because no one wants new housing in their neighborhood.”

Mike Gorman, president of Oak Ridge Builders, says that land is hard to come by and that new homes don’t last long in this market.

“Pretty much everything we have gets purchased right away. There’s not a lot of inventory to choose from because we get it all sold,” says Mr. Gorman, whose Leesburg, Va.-based firm builds homes in Loudoun, Prince William and Fairfax counties.

Not only are new homes in short supply, but resale listings are also low and buyers are competing for a limited number of homes — often bidding up prices.

“In a normal market, there is about a six-month inventory of available properties, all kinds and price ranges, to meet buyers’ needs,” Mrs. Kimball says. “But for the past few months in our area, the inventory has been down to two months or less.”

Realtors attribute part of this housing surge to low interest rates, which have enabled more renters to buy their first homes and allowed homeowners to move up to more luxurious homes.

“As long as interest rates remain at low levels and our local economy continues to add jobs and corporations continue to relocate people, the market conditions will favor sellers and buyers will continue to struggle in their quest for a new home,” says Gail Belt of Coldwell Banker in Vienna.

Mr. Maplesden agrees that low interest rates have played a big part in the housing crunch. “This increase in affordability … has caused home prices to escalate as so many buyers are chasing so little inventory.”

“Ten years ago, a rule of thumb was that buyers could obtain a home loan with monthly payments that would be equal to 25 percent of their monthly income. Now, many buyers are receiving loans with monthly payments equal to 40 percent or more of their monthly income, allowing them to buy better or larger properties,” Mrs. Kimball says.

Home prices are expected to continue to rise in 2004 and beyond, real estate professionals say, as buyers can expect to bid on several homes and pay a premium for newer, well-maintained homes.

“In the past three years, prices have gone up more than 10 percent a year,” says Mr. Alloy, who adds that he wouldn’t be surprised if homes see a 14 percent increase this year.

It’s not all good though, Mr. Alloy says. Many families are missing out on housing opportunities. If prices grew across all economic sectors at a rate of 14 percent — as they could in housing — it could cause a panic.

On the other hand, Mrs. Kimball says, while the seller’s market has been brutal for buyers, the alternative — where homes sit for six months or more, with higher mortgage rates and unemployment rates — is not a pretty picture.

“When clients ask me why sellers set aggressive prices on homes, I give them two answers,” Mrs. Kimball says. “First I show them factual information on recent sales of comparable properties in the area. Then I explain that sellers charge these prices for the same reason my cats sleep all day: because they can.”

Realtors advise buyers to establish a strategy for buying and to be flexible.

“Buyers looking for homes should be pre-approved and ready to tough it out. Rigid buyers will be disappointed unless they have lots of funds and patience. They may have to make offers for several homes before securing one,” Mr. Maplesden says.

“Buyers should also be open to neighborhoods they had not considered if they find the prices too high in the more desirable neighborhoods,” he says.

Mr. Gorman suggests that prospective buyers check in with builders on a regular basis to ask whether they have new homes available, because people sometimes experience an unexpected job transfer or, for another last-minute reason, aren’t able to buy their newly constructed home.

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