Neighborhoods in Transition Send Home Prices Up

In Northwest Washington, Mount Pleasant and Columbia Heights once offered a bonanza for bargain hunters. But those days are gone. Prices in Zip code 20010 shot up by 62.7 percent between 2004 and 2005, to $487,900 -- the fastest appreciation in the city.

The climb in the District's housing prices was mirrored across the region last year. As prices rose during 2005, fewer areas could be deemed "affordable." In the Washington area, stretching from Southern Maryland northwest to Loudoun County and northeast to Frederick County, the median price of a single-family house or townhouse in 2005 was $419,000, up from $330,000 just a year before.

Northern Virginia had the region's most expensive houses, with a median price of $491,447 in 2005, an increase of 26 percent from 2004. Suburban Maryland's median price for a single-family house and townhouse was $337,350, rising 24.9 percent.

Alhough condo prices remain considerably lower than house prices, they appreciated more steeply, to gain 33.8 percent regionally in 2005 for a median price of $281,000.

The District, where there has been a boom in luxury buildings, led the region in condo prices, with a median price of $365,750. The median sales price for condos in Northern Virginia was $308,000; in suburban Maryland, it was $210,000. Within the counties and cities surveyed, only Arlington posted a higher median condo price, $375,000.

If today's prices leave you with sticker shock, Luis Lama, an agent with Long & Foster in Falls Church, suggests that you lower your expectations a little: Don't look for a house near public transportation. Think about a fixer-upper. Consider whether you can live without a basement or a garage.

"If you want to live by transit, forget it: You don't find anything under $500,000," he said.

Betty Holmes, managing broker with the Vienna-Oakton office of Weichert Realtors, echoed that thought: "There has always been a parallel between distance and price," she said.

Janice Fife, an agent with Weichert in Silver Spring, said that in some cases a fixer-upper might be the best bet to get the most for your money.

"There are a lot of people paying for their houses in sweat equity," she said. "Ironically, they go in, fix the house up, making the neighborhood all the more unaffordable."

But there is good news on the affordability front, according to a number of real estate agents. Condos, the object of fierce bidding wars just a year ago, are coming down in price. With more condos being built and apartments being converted to condos, supply is outstripping demand.

And that means more choice and lower prices. The cooling market gives buyers a little room to breathe so they won't be rushed into a decision.

"New property availability across the board has helped affordability," said Michael Turk, managing broker with Weichert's Old Town Alexandria office. "In many areas, because inventories have increased, buyers are getting their dream townhome and not having to put in an escalation clause." In the hottest days of the real estate market, buyers commonly included such clauses in contracts, committing them to raise their offering price if there were competing bids.

Said Holmes: "People are coming back and revisiting homes again. People now have time to step back and say, 'What trade-offs am I willing to make?' "

Adjustable-rate mortgages and interest-only loans -- which require the buyer to pay only interest without paying any of the principal, thus bringing down monthly payments -- also mean that buyers may be able to afford more house than they could under a traditional 30-year, fixed-rate mortgage, Lama said.

"Financing plays a very important role in affordability. If you understand how the loans work, understand the risks, then you may be able to buy a house where you thought the prices were out of your range," he said.

But agents offer some caveats. Think twice about an interest-only loan if you're planning to stay in the house more than five years, Turk cautioned.

Fife worries that some buyers, feeling priced out of a neighborhood, have taken on more debt than they should, and if the huge price increases of the past five years suddenly come to a standstill, they will be left owing more than their houses are worth.

"You have to realize you are not going to have 25 percent appreciation forever," she said. "And while that will be good for buyers, sellers with no equity may be hurt."