- The Washington Times - Thursday, December 30, 2010

Despite record-low interest rates and an abundance of homes from which to choose, Washington-area homebuyers were rather shy in the latter half of 2010. Even when you include the busy spring market, 2010’s home-sales total was 7 percent lower than 2009’s.

So, if low rates and a good selection of homes didn’t motivate buyers in 2010, how will 2011 be any better?

“Most people are saying we won’t see real improvement until 2012,” says Debbie Rosenstein of Rosenstein Research Associates in McLean, Va.

“The fact that rates are rising isn’t going to be a good thing. The market’s not going backward, but it is only going forward slowly.”

Consumer-confidence figures remain shaky, unemployment remains high, and the economy seems to be stuck in neutral. None of these are going to help the real estate market rebound. But there are glimmers of hope.



“In September, October and November, things seemed kind of dead. Not only for me but other Realtors I talk to,” says David Rathgeber of Your Friend in Real Estate in Arlington, Va.

“But in December, it seems like things are popping more. Maybe people are trying to take advantage of low interest rates - which have edged up a bit recently. Or maybe folks just woke up and thought it was time to buy.”

December is always the slowest month of the year for Washington-area home sales, so no one should expect to see a big surge in sales for this month.

However, Mr. Rathgeber mentions one factor that could spur a modest boost in sales activity: rising interest rates.

“If it looks like rates are going to rise, some buyers will get off the fence,” says Holly Worthington, manager of Long & Foster’s Chevy Chase and Woodley Park offices.

“And that effect often continues as long as people are afraid rates will rise further. That’s because people are motivated more by the fear of a lost opportunity than the possibility of gain.”

Mortgage interest rates have been extremely low for a long time. Yet consumers seem to take for granted that rates below 6 percent are normal - because they forget history so easily.

In 1970, rates were 7 percent. In 1980, they were 12 percent. By 1990, they had fallen to 10 percent. In 2000, rates only made it down to 8 percent.

So you might have expected buyers to go crazy this year when rates fell below 5 percent.

Not so. Sales in 2010 were lower than in 2000, even though interest rates this year were much lower than they were 10 years ago.

Of course, lending standards are different than they were 10 years ago, and that’s another fly in the ointment.

You’ll recall that the loose lending standards of 2002 through 2006 created a wave of unqualified buyers rushing into the market. That surge in buying activity pushed home prices up to unsustainable levels and brought about the whole foreclosure mess.

Today’s strict lending guidelines mean fewer people are able to get a mortgage. With a smaller pool of potential buyers and a big backlog of unsold homes, there isn’t enough competition among buyers to push prices up very much.

“I think prices could be flat next year, or perhaps rise as much as 3 percent,” Ms. Worthington says. “The farther outside the Beltway you get, the lower the appreciation you’ll see.”

Strict lending guidelines affect more than consumers. Home builders also need access to credit so they can finance new projects.

“It is hard to get a loan these days, whether you are a buyer or a builder,” Ms. Rosenstein says. “It’s available, but you have to have good credit with the bank, and even then, not everyone is lending for new construction. Things are bogged down at the mortgage point.”

Still, there are a lot of things to like about the 2011 market. Homes remain affordable, and interest rates are still very good. The Washington-area job market is better than most, and the economy isn’t getting worse.

“Just remember that there’s no national real estate market, so if you make your decisions based on news reports about the national market, you’re off-track,” Mr. Rathgeber says.

“I expect at least 10 percent higher sales volume in 2011 compared to 2010. We sell more homes in March and April than in any other month, so don’t wait until the school year is over to get your home on the market. If you are planning to sell, you need to know when the buyers are most active, and it is always during those spring months.”

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