- The Washington Times - Wednesday, August 16, 2006

Home sales are plummeting at double-digit rates in the Washington area, and house and condo prices are flattening, but the region is doing better than some other cities getting bludgeoned by the housing bust, the National Association of Realtors reported yesterday.

States such as California, Florida and Arizona, where housing sales and prices flew the highest during the boom years, are experiencing the biggest comedowns in the rapid downturn from record highs set only a year ago. The same principle is true locally, where heady markets, particularly those in Virginia that enjoyed the most rapid appreciation during the boom, are now experiencing a faster decline and tougher adjustment than slower-to-bloom markets, including many in Maryland.

Virginia home sales plunged 23.9 percent in the spring quarter, compared with a year earlier, the association said, while Maryland and D.C. sales fell by 16.5 percent and 15.6 percent, respectively. Home prices also have held up better in Maryland. The sales decline in Virginia put it in the same league as California, Florida and Arizona, where the biggest run-ups occurred.

“The U.S. housing market is entrenched in a slowdown,” said Ryan Sweet, analyst with Economy.com, noting that the pronounced and often sudden decline in most areas of the country is starting to have ripple effects on consumer spending and psychology, as well as on construction and finance jobs.

The increasingly depressed market conditions are the result of speculators exiting the market because they can no longer make money, combined with a toxic mix of high prices, rising interest rates and worries about the outlook conspiring to keep potential first-time buyers on the sidelines.

The fall has been steepest in the condominium market, where investors and first-time buyers have a large presence. Scattered metropolitan areas and resorts with overbuilt condo markets are seeing outright price drops, including the District; Virginia Beach; Reno, Nev.; San Diego; Portland, Maine; Worcester, Mass.; and South Florida.

The 0.1 percent decline in Washington-area condo prices in the past year was tame, however, compared with a 12 percent drop in Palm Bay, Fla., and a 6 percent fall in Virginia Beach, among other hard-hit areas.

The prices of houses, which people buy primarily to live in, have withstood the downturn better. Buoyed by steady growth in jobs and population in the Washington area, home prices in the region managed to post a 3.3 percent rise over the last year.

Although that is down dramatically from gains averaging more than 20 percent in previous years, it compares favorably with drops of 5.5 percent in Rockford, Ill.; 2.6 percent in Toledo, Ohio; and other large declines in Midwestern manufacturing centers.

The housing market is at a tipping point, where it could level off and remain stagnant for a while, or the rapid demise could continue in overheated areas and lead to some significant hardships and dislocations, according to Economy.com.

“So far, all indications are that the housing market is slowing in an orderly fashion,” Mr. Sweet said, “but we are still early in the housing slowdown.”

David Wyss, economist with Standard & Poor’s Corp., said the housing fall has been cushioned by the historically low levels of 30-year mortgage rates, which are hovering over 6 percent.

“Although sales and starts will drop, they are not likely to drop as far or as fast as in most recessions,” he said.

Yesterday’s reports from the Realtors showed that the unwinding of the housing boom is unfolding as expected, with the most rapid deceleration in areas that saw the biggest run-ups.

“The previously high-flying coastal markets in California and Florida are showing signs of fatigue,” Mr. Sweet said. “These metro areas bear close watch, as they are at the highest risk of a price correction.”

But the reports also revealed an unexpected development: large price drops in a dozen Midwestern cities, he said.

“The top five largest declines occurred in Illinois and Ohio metro areas, which were hit hard” by layoffs in the auto industry, he noted. “Price declines in the Midwest are intriguing as house-price growth never gained traction across much of this region. That said, the region’s weak economy relative to the West and Northeast is the likely catalyst driving prices lower.”

David Lereah, chief economist at the Realtors association, said the reports show divergent trends across the country. Although once-booming areas are now in decline, other regions that were slow to take off, including Texas, Arkansas, South Carolina, Vermont, Rhode Island and Alaska, are now enjoying robust growth in sales and prices.

The areas in decline are those “with high housing costs or that have experienced a prolonged period of rapid price gains,” he said. “By contrast, states with moderately priced areas that have experienced healthy job creation are seeing sales gains.”

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