- The Washington Times - Thursday, October 6, 2005

The fact that home prices have shot up lately is old news. But did you know in our area home prices increase almost entirely in a four-month window each year?

It’s true. For the past three years, home prices in the Washington metropolitan area have risen almost exclusively during the spring and summer.

When I first charted median home prices like this, I was surprised to see how consistent this pattern is.

If you study the chart at right for a moment, you’ll see what I mean. Look at Fairfax County in at the end of March 2004. Then follow that line up to July.

Do you see how dramatically prices rose in those four months? Now, follow Fairfax County from July 2004 to March 2005.

Eight months later, the median price was virtually the same. During that entire period, prices in Fairfax County remained nearly flat.

Then, this spring, the same cycle appeared again. The median price in Fairfax County shot up from $417,000 to $500,000 in only four months.

This pattern has been occurring in nearly every Washington-area housing market. But why?

It is because eager buyers push one another to pay more and more for homes. Then, each time a home in your neighborhood sells for a higher price, it sets a new benchmark. Every seller thereafter bases his asking price on the new benchmark.

But buyers weren’t paying asking price this spring — they were often paying more. Particularly in popular neighborhoods like Capitol Hill, Bethesda and almost all of Arlington, buyers typically had to offer more than the asking price if they wanted to win the home of their choice.

That’s why so many people have used escalation clauses in recent years. This clause in the purchase offer automatically outbids any other offer, up to a certain limit.

With some escalation clauses offering as much as $40,000 or $50,000 more than the asking price, you can see why home prices would rise so quickly in a competitive market.

And the most competitive time of every sales year is, not surprisingly, exactly the same four months when we see prices rising rapidly on this chart.

Now, however, autumn is here. Not only has the market cooled off due to seasonal factors, but we are also experiencing the beginning of the end of this hot seller’s market.

In 2006, I suspect that we’ll see home prices rise more modestly. But I won’t be surprised if that modest increase happens during the spring and early summer of next year.

Even in a slower sales climate, that’s still going to be the hottest part of the year.

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

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