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Housing Experts See Further Price Declines in 2008

By Allan Lengel
Washington Post Staff Writer
Sunday, September 30, 2007

In an industry with more question marks than answers, housing experts are predicting a continuing drop in single-family-house prices in the Washington area through this year and well into 2008, a bigger drop in condominium prices, and slight rises in prices of homes in certain neighborhoods.

"In general, for the metro area, there will be modest declines," said David F. Seiders, an economist with the National Association of Home Builders. "But it depends on the exact locality."

Peter Morici, an economist at the University of Maryland, said that with that in mind, "buyers should not feel any sense of urgency to buy a home."

"Sellers would do well to sit tight if they don't have to sell," he said. "Postponing to next spring or summer might pay. Between now and then, it's going to be hard to unload houses."

The downbeat local forecast comes at a time of gloomier news nationally -- sales are slow, foreclosures are rising, and difficulties in the mortgage market have prompted speculation that a weak housing sector could weigh down the overall economy.

"It is in our forecast that we have prices dropping at least through 2008 and then picking up sometime in 2009," said Patrick Newport, an economist with Global Insight, an economic forecasting company in Waltham, Mass. "The median price of an existing home in 2008 will drop about 10 percent. For new homes, we have prices dropping about 7 percent."

Guy Cecala of Inside Mortgage Finance, a trade publisher, said he expects similar trends in the Washington area. Unlike some commentators, he sees little hope of almost any home-price appreciation in the next year, even in hot Zip codes.

"We still haven't seen the bottom in 2007," he said. "It's unlikely we're going to see a meaningful recovery in 2008 locally and nationally."

Morici predicts a somewhat quicker turnaround. "My feeling is it will bottom out sometime after Memorial Day," he said. "It could happen in the summer; it could happen in the fall. So much depends on the national economy."

He said, "A decline of 10 percent is unrealistic. It's going to be more in the range of 5 to 7 percent."

The National Association of Realtors has a more optimistic view. The group forecasts that the national median price of an existing home will drop 1.7 percent this year and rise 2.2 percent next year. New-home prices, it predicts, will drop 2.2 percent this year and go up 1.7 percent next year. The group doesn't make local forecasts.

There's even disagreement about what has already happened to prices. It depends on how changes are measured.

The Realtors' association tracks sales prices of existing homes based on transactions through multiple listing services around the country. It pegged the median price of a single-family home in the Washington area at $445,300 in the second quarter of this year, up slightly from $443,900 a year earlier and up from $425,800 in 2005.

Those numbers don't track what buyers get for their money -- that is, whether that median price bought a rambler or a McMansion. To adjust for housing quality, some market statistics track the price of the same house over time. One of those is the S&P/Case-Shiller index, which showed that home prices in the Washington area dropped 7.2 percent from July 2006 to July 2007.

Predicting just when home prices bottom out can be difficult -- like forecasting markets for stocks and commodities, experts say.

Considering that, John McIlwain, a senior fellow with the Urban Land Institute, offers this advice: "If you want to buy and move in the next three years, I say rent. If you're saying, 'We're going to stay here the next 10 to 15 years,' buy now."

Even if your home's value drops 10 percent now, McIlwain said, the value three to four years out "may be up 10 to 15 percent."

Despite the short-term uncertainty locally, housing experts are bullish about long-term prospects here. There are less drastic ups and downs in the local economy than in some other regions.

"We still have a lot of job growth, so we still have a lot of demand for housing, and we have a diverse economic base," McIlwain said.

Even with the less-than-rosy forecast, home prices in some parts of the Washington area have been faring well, at least as reflected in median sales prices. The median is the point at which half the sale prices are higher and half are lower.

In Alexandria, for example, the median price of a home jumped 3.4 percent from $440,000 in August 2006 to $455,000 in August 2007, according to Metropolitan Regional Information Systems, the local multiple listing service. (Those figures include both houses and condos.) In Montgomery County, the median price rose 2.6 percent from $450,000 in August 2006 to $462,000 last month.

Conversely, over the same period, Loudoun County had an 8.6 percent decline, the District had a 0.5 percent drop, Prince George's County declined 4.4 percent and Prince William County fell 1.3 percent.

During the real estate boom earlier this decade, developers put up an unprecedented number of new condominiums.

"There's clearly a glut of condos, particularly in D.C.," said Dean Baker, co-director for the Center for Economic and Policy Research, who is predicting that housing troubles nationally are likely to drag the economy into recession.

Condo prices locally will decline sharply, he said. "I wouldn't be at all surprised to say 20 percent. The time period is very hard to say. You can get meltdowns very quickly."

Cecala of Inside Mortgage Finance, who lives in Bethesda, said that even in popular neighborhoods such as his, he expects a decline in single-family-home prices of at least 10 percent over the next year.

Right now, he said, "$45,000 is not a big drop in price" for homes selling at $800,000 or more, and "$100,000 is not a big drop for a million-dollar home."

"I think we're subject to significant price devaluations," he said. "I think anybody who doesn't think we're going to see a drop in housing prices is kidding themselves."

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