- The Washington Times - Thursday, September 1, 2005

Which way is the market headed, and what directs which way it will turn?

These are questions real estate professionals hear constantly — especially in light of unprecedented market appreciation across the country.

The average sales price of a home in the United States stands at $219,000 — 14 percent more than during the comparable period last year, according to the National Association of Realtors. Everyone from the hot-dog vendor to the corner CEO is concerned about what’s going to happen.

Frankly, I’m counting on national population growth and the regular cycles of business to take care of any angst I might feel about the market.

Nevertheless, there are various factors that affect any real estate market, and you’ll find all of them at work when the market is moving up or down.

• Supply and demand. If there aren’t enoughhouses to meet the demand, prices generally are going to increase; homes are going to sell at a record pace; and every Tom, Dick and Harry is going to get a real estate license.

In the Washington area, we are seeing an amazing amount of job growth. In the past five years, more than 287,000 jobs have been added to this region’s economy — nearly 100,000 more jobs than the second-highest location (Miami), according to George Mason University’s Center for Regional Analysis (www.cra-gmu.org).

Here’s the downside: While the region has averaged job growth of 60,000 jobs each year the past 20 years, we have only put up an average of 35,500 houses each year, again according to the GMU center.

The lack of local plans to allow enough construction of more affordable housing has created a housing deficit to which forecasters see no end.

• Interest rates. Although many home buyers want prices to drop, this may not mean lower payments. Again, in the Washington market, a summer leveling off of prices would seem to provide potential home buyers with a break on housing affordability. Not so fast.

For instance, in Arlington, the median housing price has dipped $20,000 — from $520,000 to $500,000 — through the summer, according to the local MLS statistics (www.MRIS.com).

Sounds great. However, interest rates have increased by a quarter point, from 5.25 percent to 5.5 percent.

Assuming a 20 percent down payment for either mortgage — the $520,000 purchase with a 5.25 percent interest rate (June’s average) would have cost $2,297.17 (principal and interest) per month over 30 years; while the $500,000 purchase with a 5.5 percent interest rate (August average) will run 2,271.16 over 30 years.

The $20,000 price drop saves the buyer a “whopping” $26.01 per month because of the increased interest expense.

m Vacations and weather. This past Independence Day, nearly 13 percent of the Washington-area population left town. The American Automobile Association says 600,000 people from Washington took advantage of the long holiday to travel outside the region.

Keeping in mind that at any given time, about 7 percent to 10 percent of home dwellers are looking to move, that means that if the averages held, the Washington area lost 42,000 to 60,000 buyers for a week during that holiday season.

When buyers leave town, that naturally creates a slowing in the market.

John Townsend , director of public affairs at the mid-Atlantic AAA office, says he thinks fewer residents remained in town this summer than in previous summers. They’re finally leaving for vacation, and that means fewer buyers in town to purchase, longer times on the market and drops in prices (although minuscule) until the buying herd returns.

Weather also can play a large part in what happens in the market — particularly weather that shuts down a region, such as a hurricane or snowstorm. Weather can reduce the number of buyers flowing through open houses and checking out inventory.

You can see it’s not always the economy that determines when a house sells and for how much. Sometimes, when summer vacations lure thousands of potential buyers to visit distant attractions, the market takes a roller-coaster ride itself.

M. Anthony Carr has written about real estate since 1989. He is the author of “Real Estate Investing Made Simple.” Got a personal real estate issue? Comments and questions can be posted at his Web log: (https://commonsenserealestate.blogspot.com).

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