- The Washington Times - Thursday, June 2, 2005

It’s old news, but home prices in the Washington region have really gone crazy. The real news is that this year may be even crazier than last year.

Across the region, home prices in April were up 18 percent to 33 percent compared with 2004, rates of increase even higher than we saw last year.

Most Northern Virginia jurisdictions saw April home prices up by more than 30 percent — an incredible level of appreciation to occur in only 12 months.

I must caution you against drawing too many conclusions from the April data, however.

The chart at left shows median prices for April 2005 compared to April 2004. Monthly data is very susceptible to fluctuations caused by the sale of a few very expensive or very inexpensive homes. Those fluctuations even out in annual data, making 12-month data preferable for serious analysis. For this reason, I have presented both annual data and monthly data.

The chart also shows median prices for the entire year 2004, compared with 2003.

Although the median data from April alone shouldn’t be relied on too heavily, it does seem that 2005 home prices are rising more quickly than they did in 2004. Data for the first quarter of this year also showed double-digit-percentage increases throughout the region, and this is likely to continue in the months to come.

However, once mortgage interest rates rise significantly, we can expect to see home prices calm down.

Many of today’s buyers are able to afford these prices only because of low interest rates and mortgages with interest-only payments. Rates won’t have to rise very much before Washington-area homes rise out of reach of many buyers.

When that happens, we’ll see less competition among buyers, and that will result in a flattening of area home prices.

For now, however, prices are only going up.

Chris Sicks

Contact Chris Sicks by e-mail (csicks@gmail.com).

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