- The Washington Times - Wednesday, March 29, 2006

Median home prices in the Washington metropolitan area shot up by 19 to 31 percent last year. In many jurisdictions, prices rose even more than they had in 2004 and 2003. In only three years, area home prices have risen 65 to 98 percent.

However, the area’s housing market cooled off during the latter half of 2005. For the first time since 1999, buyers began to be on equal footing with sellers.

How much more will the market cool? Will home prices fall, or just stabilize?

“For sure, there was no bubble to burst when the market cooled,” says Michael Turk, manager of Weichert Realtors’ Old Town Alexandria office. “There is just so much job creation in this area, and that turns out to be the biggest factor in how many homes actually sell. I used to think it was interest rates, but it’s jobs.”

Despite a growing job market, the supply of homes for sale has ballooned since August. Excessive supply can lead to a softening, or even decline, in home prices.

“Prices have pretty much been flat for the last four months,” Mr. Turk says. “Prices came down between June and November and have been stable since then.”

This may sound like bad news, but after the kind of market the area experienced in recent years, many welcome the change.

“It is a much healthier market this year,” Mr. Turk says. “Some of the people who pulled out of the market last year have returned. Today they are getting the home they want, while last year they couldn’t.”

That has a lot to do with the supply of homes for sale. Buyers in February had 28,000 homes to choose from. Last February, there were only 9,800 homes for buyers to see.

Condominiums were the most-sought-after home type early last year, with insufficient supply to meet the demand. This, too, has changed.

“In March of last year, there were only 45 condos available in Alexandria,” says Mr. Turk. “Now, there are 333 available. So buyers are finally getting what they want. The demand is still there, there’s just a lot more supply now.”

Supply and price are directly related statistics. When supply is tight, buyers are in competition with one another, and their bidding wars push home prices higher.

One tool used by competitive buyers is the escalation clause. It works kind of like EBay’s bidding system. When added to a purchase offer, the escalation clause automatically raises the buyer’s offer to beat other offers. In some cases last year, the winner of the home was the one with the highest cap in their escalation clause.

However, as buyer competitiveness has softened, escalation clauses have become less common.

“We are still seeing escalation clauses today. I’d say probably 1 in 10 offers contain one right now,” says Dale Mattison, associate broker at Long & Foster’s Park Avenue office in the District. “Last year, we were seeing the clause in 5 out of 10 offers, and in 2004 I would say 9 in 10 buyers used an escalation clause.”

Buyers aren’t the only ones who change their strategy when a housing market slows. Sellers need to rethink their pricing plan.

“The more sophisticated Realtors are telling sellers not to be aggressive like last year,” Mr. Mattison says. “I’m getting ready to put my mother-in-law’s home on the market, and I need to figure out how to price it. Well, a nearby home was listed last week, priced exactly the same as the most recently sold home in the neighborhood.

“Now, last year, you would have automatically added $10,000 or $15,000 to the sales price of a recent sale,” he says, “but in today’s market, that seller kept the pricing of their home the same as the recent sale.”

With less-aggressive sellers and less-competitive buyers, it seems likely that home prices will be more stable this year.

“Prices won’t shoot up like they have been doing,” Mr. Mattison says, “but there will still be significant demand, because this area is still creating jobs and many people are relocating here. So prices are going to edge up this year. Overall sales numbers will be down, I suspect by 10 percent. But, I think prices will go up 6-8 percent around the region this year.”

Given all of these new market dynamics, both buyers and sellers need to revise their thinking to do well in the 2006 housing market.

Sellers will find their homes sell more quickly, and perhaps for more money, if they are priced properly and looking good.

“One home in our area just had 16 viewings and received multiple offers,” Mr. Mattison says. “That’s because they priced it right. I bet it will sell for more than they asked. But if that same seller had asked $10,000 or $15,000 more, they wouldn’t have received the same level of interest, and maybe wouldn’t do as well in the end.”

Many home buyers use pricing to decide which homes they want to see, but once they’re in your home, how it shows is what matters.

“Sellers need to make sure the house shows well,” says Mr. Mattison. “A year or two ago, you didn’t have to do anything to sell a property. You’d just open the door and it would sell regardless of how it looked. But we’ve spent the last six weeks getting my mother-in-law’s home ready so it will shine when it hits the market.”

And how do things look for buyers this year?

“The detached market is still strong, with supply and demand fairly well balanced,” Mr. Turk says. “Buyers should be able to negotiate most strongly in the condo market. This market will remain very, very flat and soft this year, so certain people should take advantage of the low interest rates and the abundant supply, and buy now.”

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