The Unreal Estate Market and Me

By Jonathan V. Last
Sunday, December 10, 2006

The real estate market is a complex beast, one only dimly understood by the mere mortals among us. Thank God we have real estate professionals. Unlike, say, journalists, Realtors undergo hours of rigorous training. They even have to pass a test. So they're a lot like doctors, maybe even priests.

If Realtors are indeed a priesthood, then David Howell is their oracle. After I bought my first home, a condo in Old Town Alexandria, in the spring of 2004, I began receiving a monthly newsletter from the local real estate giant McEnearney. Prominently featured in the three-page mailing is MarketWatch, a column penned by Howell, the managing broker of McEnearney's office in McLean.

Unfortunately, the pronouncements of this particular oracle, while absolute and pure, are sometimes hard to understand and, over time, even harder to reconcile.

When I first started reading Howell's column, in 2004, the real estate market was roaring. He wrote: "Ten More 'Boom' Years? The National Association of Realtors' Chief Economist David Lereah expects the current real estate boom to continue for the next decade. . . . And if you have been reading this space for any period of time, you know that we feel just as strongly about the health of this area's housing market."

In his first dispatch of the following year, Howell asked: "2004 Was Another Record Year -- Could 2005 Be Even Better?" The answer was affirmative. "Despite predictions from many this time last year that the local real estate market would begin to taper off in 2004, it was another record year for home sales in Northern Virginia. . . . Is there any way the market could improve over these staggering numbers? Yes -- with a key exception. We believe that the number of sales will increase in 2005. . . ." In nearly every column he wrote in early 2005, Howell gleefully related the market's enormous gains in sales prices. And although he would sometimes hedge his bets, writing that such runaway increases probably wouldn't last, even he didn't seem to believe it. "While some in the national press continue to talk about a housing bubble that's about to burst, we maintain that 2005 will set new records for the number of sales," he wrote in his February/March column that year. "We had also projected home price appreciation in the range of 7% - 9% for the year. . . . It turns out that, if early indications continue, we were wrong. We weren't optimistic enough! The average price of homes that settled in January 2005 climbed 21% from January 2004 sales, and the median price jumped by 26%. We know this is too early to say that this trend will continue, but we are also seeing the lowest inventory of available homes on the market at any time in at least the last 20 years."

It's hard to square disclaimers about slower appreciation with such statements. But then again, the path to wisdom is an arduous one.

One thing that wasn't hard to understand was Howell's dislike of the media. He has gone after publications from the Nation to Fortune, and he really dislikes The Washington Post. In March/April 2005, he assailed a Michael Kinsley opinion essay in The Post that argued that the housing market was due for a correction -- and that the correction would be good for the country. Howell insisted that there would be no downturn and that, regardless, there was no upside to a real estate crash. "[Y]ou and your colleagues similarly do not understand the dynamics of the residential real estate market," he thundered. "Local real estate professionals do."

By summer 2005, the number of purchase contracts was decreasing precipitously. This caused worry for some people who thought that drops in contracts were often followed by rising inventory and falling prices.

But the oracle was there to steady us. "Has the market finally topped out?" Howell asked. "No, it hasn't. In fact, in most senses the market has never been better." In the July/August 2005 MarketWatch, Howell explained that "the rate of home price appreciation appears to be moderating just a bit. We have stated for some time that the 22-25% home price appreciation that we have witnessed for the last two years is not sustainable over an extended period of time. . . . We fully expect that prices across the board will be rising between 12% and 15% by the end of the year."

By autumn of 2005, the oracle was again troubled by the unbelievers: "[I]t would appear that any number of media outlets have decided that there is money to be made in spreading baseless fear that the real estate sky is falling. . . . Is the market softening? Absolutely. Are properties taking longer to sell? Absolutely. Is there substantially more inventory on the market in Metro DC than this time last year? You betcha." Then Howell dropped the hammer:

"Is it possible that some area home prices might actually go down? Possible -- but not probable. What we are seeing is the expected return to a more normal market after two white-hot years that were anything but normal. Instead of 20-25% appreciation, expect the average price to rise 7-12% next year. . . ."

In his March/April column this year, Howell began with a quote from a local lawyer: "Real estate here will never depreciate." The quote was from 1891. Later in the column, Howell casually mentioned that "we would not go so far as to say that values can 'never depreciate.' Twice in the 1990s, the average sale price of a home in Northern Virginia dropped from the previous year."

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