Home values in D.C. area grow, thanks to high demand and low inventory

June 21, 2013

High demand and low inventory helped push up home values in the Washington region by 6.3 percent during the 12-month period ending in May, according to data released this week by Zillow, exceeding the national rate of 5.4 percent.

But factors in the area’s housing market are rapidly changing, experts say, and the scenario a year from now could look much different.

Mortgage rates rose steadily for a six-week period beginning May 2, though they fell slightly this week, which might cool demand. And more new listings for existing homes are entering the market, which might slow the rise in prices.

Indeed, Seattle-based Zillow forecasts that home values in metropolitan Washington will flatten over the next 12 months, rising only 0.1 percent from May 2013 to May 2014. Meanwhile, home values during that period are expected to climb 4.1 percent nationally.

In light of Federal Reserve Chairman Ben S. Bernanke’s remarks Wednesday that the central bank will begin scaling back its $85 billion bond-buying program to boost the economy, “I think we’re going to see [more upward] movement in interest rates, and that’s going to make home prices look a lot different in six to eight months,” Stan Humphries, Zillow’s chief economist, said in an interview.

Some local housing experts agree that the market will cool down over the next year, but not to the level that Zillow is projecting.

“More listings coming onto market will take some of momentum out of the increasing upward trend, but I don’t think it’s going down to a 0.1 percent price increase,” said Jonathan Hill, president of RealEstate Business Intelligence (RBI), a subsidiary of the Rockville-based multiple listing service MRIS.

Earlier this month, RBI issued a report saying that after a long drought, new listings rose 20 percent from April to May. The Center for Regional Analysis at George Mason University, which works with RBI in compiling the data, previously said that new listings surged 22 percent from March to April.

The RBI report said that more new listings eventually could cause home prices to stabilize, helping to bring them within reach of first-time buyers.

But Lisa A. Sturtevant, deputy director of the Center for Regional Analysis, said she believes it will take longer than a year for new listings to significantly impact inventory and prices.

Listings went up, but inventory is “still 17 percent lower than where we were last year,” Sturtevant said in an interview. “It’s going to take a while for inventories to build up.”

Humphries cited three reasons he thinks home values will flatten in the Washington region:

●Negative equity is declining, prompting more homeowners to list their properties.

●Price gains also are spurring more homeowners to put their properties on the market.

●New construction has been increasing, helping to ease inventory constraints.

“Home price growth is slowing in the D.C. metro,” Humphries said. “The month-over-month [appreciation] is decelerating. From March to April, it was 0.4 percent, and from April to May it was 0.1 percent.”

David Crowe, chief economist for the National Association of Home Builders, said the supply of new houses in the region grew 20 percent this year, and he expects it to rise 28 percent next year.

But Crowe said he thinks the home construction boom could result in higher prices of new and existing homes.

“Workers’ wages are going up to attract workers back into home building. Material prices soared earlier this year . . . and land prices have gone up,” all of which will affect new-home prices, Crowe said.

“If existing-home prices go up, enough buyers will move to new homes,” Crowe added. “And the opposite is true. If new-home prices go up, there will be a bigger demand for existing homes, and that demand will push them up.”

Despite the flat number for the region, Zillow’s forecast for individual jurisdictions varies.

For instance, it says that over the next 12 months home values are projected to rise 3.7 percent in the District and 1.8 percent in Woodbridge, Va., but drop 2.9 percent in Bowie, Md.

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