What $500,000 buys in D.C. area real estate

October 7, 2011

Let’s face it: It’s been rough the past several years. Any real estate agent will tell you that. Economic growth has been tepid. The unemployment picture is not encouraging. The latest figures on new foreclosure filings are kind of scary.

But the Washington area is doing better than most parts of the country, right?

To gauge the region’s real estate market, we set out to find out what you can buy today for $500,000 — from downtown Washington to farm country in Loudoun County. Our diverse group of properties shows how different parts of the region are faring.

Overall, of course, in most places it’s still a buyers’ market, which means a $500,000 property today buys you a lot more space and amenities than at the market’s peak, between 2005-2007. But the recovery of the region’s real estate market has been patchy and varies widely by county.

We found a 3,200-square-foot, five-bedroom home in Upper Marlboro on nearly four acres that has been on the market for nearly a year. We also found an 875-square-foot condominium in a plush new downtown building on Massachusetts Avenue, near Chinatown. For commuters, a 1930s rowhouse in Arlington County within walking distance of restaurants and shops could be had. So could a newly constructed townhouse in Rockville near Rock Creek Regional Park. Want to buy a short-sale home? We found that, too — a 220-year-old stone-and-log cabin on five acres with five fireplaces.

There’s always been a big range in housing prices in the Washington area depending on where you live. But the differences are even more pronounced now because some counties have fared better than others during the housing boom, bust and recovery.

“Metro-wide, we’ve outperformed pretty much every housing market in the country, particularly in the recovery. But in the region, we have a lot of different local markets,” said John McClain, senior fellow with the George Mason Center for Regional Analysis. “What a $500,000 house looks like in D.C. and Arlington is totally different compared to what it looks like in Prince William, Spotsylvania and Prince George’s counties.”

The story of Washington real estate is very different from that of the rest of the country. The median price of the region’s existing condos, townhouses and single-family homes sold in August was flat, or a 0.30 percent increase over the past year, to $346,700, according to the National Association of Realtors. Meanwhile, the U.S. median price fell 5.4 percent, to $168,400, during the same period.

In general, the farther you travel from downtown Washington, the slower the recovery has been. An analysis by McClain found that Arlington has rebounded the most, with median sales in August back to 90 percent of their November 2005 peak of $550,000. The District’s median sales are back at 87.9 percent of their peak; Fairfax and Alexandria are just over 80 percent of their peak; Montgomery County is at 77.5 percent of its peak, according to McClain.

But in Prince George’s and Loudoun, the recovery has been slower, and there’s a long way to go to reach those prices of the boom years.

“It’s an opportunity to get a larger home for a better price,” said Dawn Billow of Keller Williams in Leesburg. At the peak of the peak, $500,000 could buy you a 2,800-square-foot home in Leesburg; now it can get you 3,000 to 3,500 square feet. “Or you can put someone in a neighborhood they might not have been able to live in before, with a homeowners association and a pool,” she said.

The typical buyer in the $500,000 range is having a tough time because he or she is generally moving up from a smaller house — which has taken a big hit in value, too. “With the typical sale, they have to sell their $325,000 house first. But it was worth $450,000 three to four years ago,” said Barry Harlowe, also of Keller Williams in Leesburg.

The first wave of foreclosures and short sales in the area were mostly in the lower-end price range — about $400,000 and below, Harlowe said. But the distress has been creeping up toward more homes in the $500,000 range as homeowners with higher incomes are unable to hold onto their places after a financial setback.

Buyers can find good deals when buying from a bank, but the fire sales are becoming more rare. Two or three years ago “the banks were more likely to accept anything just to sell” homes under foreclsoure or short sales, Harlowe said. “Now, they’re wanting to get market value.” He said many banks have set a schedule of price reductions on homes they own based on the house’s time on the market. It’s like buying a dress at a consignment store — the price drops over time as it sits unsold.

Agents say that buyers can find good deals in foreclosures and short sales but that they should be prepared to endure administrative hassles and delays.

Barbara Williams is renting a log cabin on a 100-acre farm in western Loudoun, where she raises sheep as a hobby. When the farm was about to be sold 21 / 2 months ago, she started searching for a small house with a lot of land and a target price of $500,000.

After reading the gloomy national housing forecasts, she was surprised that she didn’t find more rock-bottom deals. “The prices were higher than I thought, especially if you aren’t willing to wait for a short sale or buy foreclosed property as is,” she said. “And the foreclosures and short sales get bought up quickly.”

Two months ago, she moved fast to put a contract down on a foreclosure that seemed to be a steal at $430,000. But the sale fell through when her attorney discovered a $75,000 tax lien on the property.

Williams continues to look, but with less sense of urgency now that sale of the farm she’s renting fell through, too. “I can afford to keep renting, but I can also afford to buy,” she said.

In Prince George’s, the real estate market has struggled to come back. Median sales peaked at $338,000 in June 2006, plummeted to $155,000 in March 2011 and have budged only slightly since then. “There were so many subprime mortgages, and so many houses are going through foreclosure, which is depressing the prices in Prince George’s County more than elsewhere,” McClain said.

Today, $500,000 can buy a 3,000-square-foot house on an acre or more in some parts of Prince George’s. “Those homes would have cost $700,000 or more during the boom days,” said Ken Montville of Re/Max in Upper Marlboro. Builders halted new construction during the bust and are slowly starting back up but have scaled back their grandeur. “When the boom was happening, they were building $1 million houses in Upper Marlboro and Glen Dale, then the bottom dropped out and they stopped,” he said. “Now they’re building more modest houses on the land, in the $500,000 to $550,000 range, that are smaller and with fewer amenities.”

The toughest sell tends to be houses that are farther from public transportation or highways — such as the 3.7-acre home in Upper Marlboro that is eight miles from Route 301 and has been on the market for nearly a year, now at $489,000. It’s also had tough competition from homes in the area that cost $50,000 less but need more updating — which get snatched up by buyers who think they can do the repairs less expensively on their own, Montville said.

Some closer-in neighborhoods in Prince George’s haven’t suffered as much. “Places closer to the Metro are coming back faster,” Montville said. And that’s a common theme throughout the Washington area: Neighborhoods that are most convenient to downtown and public transportation have been the fastest to recover.

“If you look at your strong commuting markets, the supply is definitely low and the demand exceeds it, and prices have gone up just on scarcity,” said John Heithaus, chief marketing officer for Metropolitan Regional Information Systems, the multiple-listing service. Many people in areas such as Rockville, Arlington and Alexandria aren’t selling their homes unless they have to, even if they’d like to move.

“People are kind of hunkering down because of the economy,” said Gary Jankowski of Coldwell Banker on Capitol Hill. “It feels like one of those years where there won’t be a lot of inventory. Some are renting their houses out or just waiting to sell.”

Close-in buyers may not be getting deals that are available in other counties, but the market has calmed down a lot from its frenzied peak. “The buyers are doing a lot more homework,” said Bob Adamson of McEnearney Associates in Arlington. Some houses are strategically underpriced to attract multiple offers, he said, but instead of just offering escalation clauses as happened during the boom, “buyers are focusing on what the sellers need,” he said.

Financing has become a lot more complicated and has been tripping up some sales, so buyers are competing by removing financing contingencies and providing a loan approval letter with the offer. And the more cash down, the better.

Jeffrey Rapaglia and his wife, Irene, started searching for houses after their rent in Falls Church jumped by 24 percent this year. “We wanted something larger and something we could call our own,” he said. The houses they liked in Falls Church cost $750,000, and they realized they could get a much larger house in Reston for the same price. But then they had second thoughts about the price, the size and the commute.

“We would have been going from 1,400 square feet in the condo to 4,500 square feet out there, and half the house would have been empty,” he said. “And my commute to D.C. would have been crazy. We decided to take a step back.”

Instead, they expanded their search to areas just beyond the Falls Church borders. In August, they bought a 2,300-square-foot, three-bedroom townhouse in a small 17-year-old community tucked away off Route 50.

“It was bigger than what we looked at in Falls Church and less than a mile away — and cost $240,000 less,” he said. They paid $520,000 — $20,000 less than the home’s initial price. “It was a buyers’ opportunity.”

Kimberly Lankford is a freelance writer.

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