Last year’s real estate market ended very differently than it began, leaving Washington area buyers, sellers and Realtors wondering just what to expect from 2006. Early in 2005, sales were slightly ahead of 2004. Cumulative sales were up 2 percent at the end of May.
However, the market cooled off abruptly in the second half of the year — though many in the area still haven’t come to terms with that.
“It has been interesting, hasn’t it?” says Alana Lasover, sales manager of Coldwell Banker’s Bethesda office. “And I think it will get more interesting this year, but I don’t know how yet.
“In January, a lot of clients were being told, ‘Wait another month. Wait until after the Super Bowl to do anything,’ ” she says. “That’s because we’ve always said Super Bowl Sunday kicks off the year’s market. So what’s going to happen?”
It’s a question many in the Washington metropolitan area are anxious to have answered.
During the first half of 2005, the housing market was rather predictable.
Homes sold very quickly, so buyers had to be prepared and aggressive. They were told to expect some disappointments because other buyers would get in their offers faster or outbid everyone else.
“Back then, you only had a day or two to see a home before it was sold, so buyers really had to be prepared to win,” says Jaye Jordan, a Realtor with RE/MAX Allegiance in Bowie. “It’s different now. You at least have the opportunity to get to the house, have a look at it and take some time to consider. Homes are staying on the market a lot longer.”
Early last year, sellers had it much easier than buyers. They didn’t have to do much — stick a sign in the yard and wait for the dollars to pour in.
“Sellers today need to be more open to help from their Realtor,” Mr. Jordan says. “The services of a Realtor are even more important than before, particularly because pricing has changed.”
When the market was moving fast and prices were rising quickly, pricing a home wasn’t too hard. A seller or Realtor simply looked at a few similar homes that had sold recently and set the price a little higher than those.
Now that the market is stabilizing, however, it gets trickier to price a home properly.
“If you price a home too high, you can wind up getting even less than if you had priced it properly to begin with,” Mr. Jordan says. “Some sellers still haven’t made the transition, haven’t realized that the market has equalized. And their homes are staying on the market longer than others. Even some of the Realtors haven’t made the adjustment as of yet.”
In all, 123,000 existing homes were sold last year, a drop of 5 percent compared to 2004.
Still, last year’s sales were 3 percent higher than 2003 sales. So it wasn’t a slow year, by any means.
Nevertheless, the cooling that began in late summer could continue in 2006. If it does, sales records set in 2004 won’t be broken for a while.
“It was definitely much cooler from October through January,” Mr. Jordan says. “Still, in Prince George’s County, condos and town homes are selling well, especially in the central parts of the county. I think Bowie, Largo and Upper Marlboro are still doing well because you can find affordable homes there. Single-family homes around $300,000 and most condos are still moving very quickly.”
Throughout 2005, Prince George’s County was the most competitive market in the Washington region. A combination of strong sales and limited inventory caused buyers there to battle one another more than in any other area market.
Buyers were drawn there last year because Prince George’s County is close to the District and affordable.
In December, the median sales price there was $315,000, compared to $449,000 in Montgomery County and $484,000 in Fairfax County.
“The first time I heard it, it caught me off guard. It was early 2004, and it was the first time I heard someone say they were moving from Montgomery County to Prince George’s County,” Mr. Jordan says. “Before then, it was common for folks to move [in] the other direction, but when prices got too high in Montgomery, folks starting looking around.”
Affordability also drove buyers to move farther away last year. Although total sales were down in most area jurisdictions last year, a few counties saw sales rise in 2005. Total sales were up in Spotsylvania, Stafford, Prince William and Charles counties last year.
Although these counties did see sales slow down near the end of the year, they were so popular with buyers during most of 2005 that they finished the year ahead of 2004.
Even these outlying counties are becoming expensive, though, making affordability a problem that is having an impact on the entire market.
“This is a trickle-up industry,” Ms. Lasover says. “If the first-time home buyers can’t find something they can afford, if they never come into the market at all, that means the next guy up the chain can’t make his move. If he can’t sell his home, he can’t buy his next home. And if all that movement doesn’t take place, the market really slows down.”
Even though mortgage interest rates remain historically low, they did rise some last year. It only takes a modest increase in interest rates to make home buying impossible for some first-timers.
“At the other end of the market, some people aren’t buying because homes have become so ridiculously overpriced,” Ms. Lasover says. “I’ve heard people say, ‘I am not paying $1.3 million for that one-bath, no garage house with tiny closets. No way.’
“It is particularly painful for out-of-towners,” she says. “Think of a couple moving here from Madison, Wisconsin. They are so excited about coming to live in the nation’s capital, and with their great new job, they’ll be able to spend a million dollars on a house.
“Now, back in Madison, a million-dollar house is a mansion,” Ms. Lasover says, “but in Bethesda, Chevy Chase or Northwest D.C., it doesn’t get you quite as far.”
“The buyer has to adjust his sights downward,” Mr. Jordan says. The buyer’s “mind needs to move from what they want to what they can actually afford. The classic all-brick single-family home near the Metro may be what a lot of people want, but it’s just not realistic all the time.”
What does all this tell us about the 2006 market? Will sales continue to cool, or were the past several months a temporary slowdown? And what happens if interest rates rise even more?
“You know, I’ve been in this industry for 30 years, and I still can’t tell people what is going to happen,” Ms. Lasover says. “We just don’t know what lies ahead.”