The Unreal Estate Market and Me

Somehow, I'd missed that small fact in his prior columns -- maybe because he'd never mentioned it in all the months I'd been reading MarketWatch.

By spring of this year, overall inventory in Northern Virginia had increased 442 percent from the previous year, Howell said. Houses were sitting on the market longer, and Howell had all but stopped including figures for average and median sales prices in his columns.

Clearly, the oracle was testing my faith.

Then came the June/July MarketWatch. "When demand drops and supply increases, prices fall. That's Economics 101, right?" Howell asked. "Wrong. Remarkably, 4.6% represents the increase in the average sales price from the first five months of 2005 to the first five months of 2006. . . . While 4.6% is a far cry from the 20% - 25% annual increase that we have seen in the last several years, it is nonetheless a truly remarkable number. A note of caution: This does not mean that all homes are worth more today than they were this time last year because that clearly is not the case. Some homes, based on neighborhood-level supply and demand, have fallen in value."

So, it seems that declining prices had moved from the realm of the improbable to the "clearly" obvious. If I hadn't seen it happening in my own neighborhood, I wouldn't have believed it.

The September/October MarketWatch gave the "Top Ten Reasons to Be Optimistic About Northern Virginia's Housing Market." Reason No. 1: "The softening of the market. Believe it or not, that's a good thing." (Take that, Kinsley!) Howell also noted that the market has history on its side. "The compounded average annual increase in the average sales price of a home in the metro DC area over the last 30 years is 7%. . . . We won't see that in 2006, but an individual's housing decision should be a long-term decision. Feel good about owning a home here -- unless you have to sell right now."

Fortunately, I don't have to sell right now. My wife and I can wait for those 7- to 12-percent annual increases, which I'm sure are right around the corner.

That's what we thought, anyway. But Howell's October/November column was more sober:

"Most of the major statistical indicators of the health of Northern Virginia's market are trending down, but we still believe that there is a 'soft landing' going on, not a crash. Inventory of available homes is up; the number of contracts is down; it is taking longer for properties to sell. . . . As a consequence, the average sales price of a home in Northern Virginia has actually dropped about 6% -- on average -- from this same time last year. Nonetheless, we remain confident that the market is experiencing a wholly expected and normal adjustment after several years of ultimately unsustainable price appreciation."

Hoping to rid myself of confusion, I sought wisdom from the only source who could ease my anxieties -- the oracle himself. I called Howell and asked him if, in hindsight, he had been too optimistic.

"Maybe a little," he responded. "But honest to goodness, I don't think very much. . . . Yes, my projections were probably a little on the rosy side. But there are still folks who are talking about a bubble bursting or prices really coming unglued. . . . Are prices down now compared to where they were a year ago? Absolutely. But if you look through a slightly different side of that same prism, prices today are still considerably higher than they were two years ago. . . ."

So, I found my consolation -- and I remain confident in David Howell. If you get too bogged down in numbers, you might encounter bad news. But oracles serve deeper truths. After all, Howell does this for a living.

jlast@weeklystandard.com

Jonathan V. Last is the online editor of the Weekly Standard and a weekly commentator for the Philadelphia Inquirer.