Washington area’s housing market is recovering, albeit unevenly
The Washington real estate market has been trudging up a long, steep hill for years now, trying to make up lost ground.
So, where do we stand?
In some areas, there are signs of a stronger market: foreclosures and short sales comprise a smaller portion of the total number of houses for sale; in some neighborhoods, prices are appreciating modestly; and in some places, houses are even fetching multiple offers.
But local economists and real estate experts have noticed that the market’s health varies greatly in Virginia, Maryland and the District, making the area’s real estate recovery a tale of two states (or three jurisdictions.)
Northern Virginia is outpacing the Maryland suburbs in several metrics. The median sale price of houses in Northern Virginia, which in February was $335,000, has been increasing steadily since 2009, according to RealEstate Business Intelligence (RBI), a division of the region’s multiple listings service. Suburban Maryland’s median sale price continues to decline, and was at $230,000 in February. The District, which had the second-highest median price before the housing crash, now leads the region (with a much smaller number of houses), at $398,500, according to RBI.
Thinking of putting your home up for sale in suburban Maryland? On average, a house there sits on the market 39 days longer than a house in Northern Virginia does.
Although there are many reasons for the difference, Maryland and Virginia’s diverging real estate pattern can be attributed to how the two states suffered through and then handled the large glut of foreclosed houses that came on the market, said Lisa A. Sturtevant, assistant research professor at George Mason University’s Center for Regional Analysis.
In 2010, Maryland put in place a court mediation process that allowed homeowners to negotiate with banks to try to remain in their homes. The process results in more foreclosed houses sitting on the market longer, which then drags down prices. A foreclosed house can sell for up to 50 percent less than a non-foreclosed house.
In Virginia, there is no court process, which is less beneficial for the homeowner facing foreclosure. But the result is lenders have been able to take possession of foreclosed houses more easily, which then allows the property to be sold more quickly.
“We got hit so hard by the first wave of foreclosures,” Sturtevant said, noting that Northern Virginians lost their homes far faster in the early part of the housing crash compared to Maryland.
Around 2010, the Obama administration offered the home buyer tax credit, which spurred housing sales in the area overall, particularly in Northern Virginia, where prices started to modestly appreciate. But Maryland’s prices did not get a similar lift because the state was still working through its troubled mortgages.
“Maryland didn’t quite get that bump” from the home buyer tax credit, Sturtevant said.
Two counties, two stories
Local economists point to the difference in recovery for Prince William County in Virginia and Prince George’s County in Maryland — both suburban communities hit hard by foreclosures.
Prices in Prince William peaked around December 2005, when the median house sold for $420,000, according to RBI. Three years later, the median price dropped to $175,000 as the surge of foreclosures hit the market, but it began climbing back up by 2009 and now is at $250,000 — nowhere near the peak but on a steady pace.
In Prince George’s, prices peaked later, in June 2006 at $340,000, according to RBI. But the slide that began in 2007 gained momentum over two years and hasn’t yet turned around. The median price continues to fall, although the pace has slowed in the past year. The median sale price in February was $152,000, the most recent data available from RBI.
This year, Sturtevant thinks Maryland’s real estate market is showing signs of improvement and should start to close the gap with Virginia. Montgomery County’s median sale price has been edging up the last few months, but any improvement, economists and real estate professionals say, will likely be modest.
“The market is improving; it’s not improving as quickly as many would want it to,” said Sandy Paul, national research director at Delta Associates. He also notes that another factor affecting Northern Virginia’s relative strength is that it has created more jobs than suburban Maryland. “We have to recalibrate our expectations in this market. We had a good run; we will continue to see success, but at a less robust level than we’re used to.”
The new normal
Of course, the Washington area is faring better than many other metropolitan areas in the country, with its relatively stable economic growth and modest job growth forecast this year. Real estate professionals say they expect to see a slight improvement in the number of houses sold this year and one to three percent growth in price appreciation — the first annual appreciation the region has seen in years.
But several challenges make this market far different than it used to be. For one, it’s much smaller.
“Since the peak of the market — and this is a frightening statistic — since 2005 to now, the dollar volume of sales in those close-in, most accessible areas went down 46 percent,” said Donna Evers, president of Evers & Co. “If you had a pie, the pie was almost diminished in half.”
Another firm, McEnearney Associates, which does a large portion of its business in Northern Virginia but also has clients in the District and Maryland, says the total number of houses for sale right now is roughly half what it was a year ago.
David Howell, executive vice president and chief technology officer at McEnearney, said some of the higher median prices in Northern Virginia reflect the lack of inventory, particularly for houses priced at less than $300,000.
“The slowness of this recovery is indicative of the hole that got dug up when the bubble burst,” he said. “The reality is there are folks who took a beating here. They can’t sell because they’re upside down and it will take some time to get right side up.”
Still, there is some optimism that the lack of supply will force demand to push prices higher, which has happened in Northern Virginia and the District in recent months, although modestly.
Howell said a house his firm listed in Silver Spring this month fetched seven offers. None of the offers waived an inspection. None of the offers included an escalation clause. And none of the offers were over the asking price. It’s a sign, he said, of a new normal.
“We think it’s encouraging,” he said.