- The Washington Times - Wednesday, February 22, 2006

I spent nearly an hour on the phone with a gentleman the other night talking statistics and the real estate market in the Washington area. He’s a renter, trying to decide whether to buy a home in this area now or if he would be wiser to wait.

Looking over the statistics provided by the Metropolitan Regional Information Systems Inc., the region’s local multiple listing system, it was apparent that you can make the stats say anything you want them to.

In this renter’s look-over, his view of inventory and sales prices is pushing him more toward renting.

Remember a few months ago when nearly every media outlet was concerned about dropping average sales prices during the fall? Well, this guy got me looking deeper than just the average monthly price.

Guess what I found: In the final quarter of every year in the last five years for the Washington area, the price appreciation slows.

Another piece of information was that without fail, from January 2001 to January 2006, every January, the average sales price was less than the average sales price in December.

And, for those statistics hounds out there, for the last five years, every February average price has dropped from January’s average sales price, except for 2005.

Even this year’s month-to-date average sales price for February is down, right on schedule.

You have to be careful with statistics. Especially when those who are quoting them are just now looking them over for the first time. They might hurt themselves if they’re not careful and take a few home buyers with them.

What’s really amazing are those who point to Los Angeles — where a few years ago huge price drops followed many years of unprecedented growth — as a lesson for formerly hot markets such as Washington, Phoenix and Miami.

In Los Angeles, some homes lost half their value in the late 1990s. Naysayers warn that this could happen in the Washington market.

According to the Center for Regional Analysis (CRA) at George Mason University in Fairfax, when the Los Angeles “bubble” burst, the local economy was also losing more than 400,000 jobs at the same time.

That is not happening here.

This is why I always tell investors to look at the local economy before investing in a particular market. Home sales prices, rent-to-mortgage ratios — all of that is secondary when it comes to your analysis of the local economy.

It’s pretty simple: Houses are where the jobs go at night. If a market can’t keep up with its job growth, home price appreciation will follow.

That’s what has been happening in Washington.

In 2005, the economy picked up more than 80,000 jobs, right after 72,000 new jobs were added to the economy in 2004.

In 2006, economists are projecting another 75,000 new jobs for the area, making it, once again, the hottest job market in the country.

Since we keep building only about 30,000 new houses each year, according to CRA, the only thing that can keep the housing market from moving ahead is the vacancy rate in apartments and less expensive residential rentals. Statistically, these are disappearing at a good clip in the region, as well.

Fairfax County is experiencing a landlord’s market of sorts. In the fourth quarter of 2005, rentals through the MLS were disappearing faster than they were listed.

About 80 percent of high-rise apartments rented for an average of $1,599 — a 19 percent increase in rent. Midrise apartment rents rose 24.5 percent to $1,609 with an 85 percent absorption rate.

Meanwhile, single-family homes rented at an average of $2,164 with an 85 percent absorption rate.

Investors with town houses and garden-style apartments rented 94 and 95 percent of their listings in the fourth quarter, respectively.

The average town house rented for $1,785, while the garden apartment went for $1,331.

As rents move upward, tenants will again begin moving toward purchases when they hit the level of being able to buy for the price they rent.

When it comes to statistics, the astute investor and home seeker will look at more than just one number reported each month. Average sale prices are driven by supply, demand and job growth. Rentals are driven by expensive residential home prices and the number of vacancies.

As you look toward purchasing your own home, be sure to take all numbers into account.

M. Anthony Carr has written about real estate since 1989. He is the author of “Real Estate Investing Made Simple.” Post questions or comments at his Web log (https://commonsenserealestate.blogspot.com).


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