D.C. area housing market relatively insulated from downturn, report finds
Tuesday, July 27, 2010
While the nation's housing market struggles amid a sudden downdraft that has once again battered sales, the Washington region appears relatively insulated and poised for a turnaround.
Home-buying activity in the second quarter was well above where it was in the comparable period a year ago, and homes sold more quickly and at higher prices, according to a study compiled by the Delta Associates consulting firm and Metropolitan Regional Information Systems, the local multiple listing service.
"We feel quite comfortable in saying that the bottom has passed in this region," said Sandy Paul, Delta's national research director. "But if the national and global economies take a turn for the worse, all bets are off."
The local market owes its strength in part to its relatively low unemployment rates and plentiful supply of high-paying jobs, the study concluded. Its performance contrasts sharply with the national trend, which shows home sales plummeting in recent months and the supply of homes swelling because of renewed fears about job security and a tightening lending environment.
Adding to the gloom Monday was a government report showing that even though new-home sales climbed almost 24 percent in June from May to a seasonally adjusted annual pace of 330,000, that rate ranks as the second lowest since 1963, when the Commerce Department started compiling such data.
"May's [new-home sales] were the worst ever and June's were the second worst," said Michael Larson, a housing analyst at Weiss Research. "You're seeing a housing market that's still struggling to find its footing."
But the Washington market stands out as a bright spot in part because it continues to add high-salary jobs that fuel housing demand, the MRIS/Delta report said. Second-quarter home sales in the region shot up nearly 61 percent from the first quarter and about 16 percent from the same quarter a year ago, the report said.
Impact of tax credit
Much of the activity took place in the lower price ranges -- from $120,000 to $299,000 -- as bargain hunters chased after aggressively priced foreclosures and took advantage of record-low interest rates.
A recently expired home-buyer tax credit -- $8,000 for some first-time buyers and $6,500 for certain repeat buyers -- also helped boost area sales in the early part of the quarter, but not as much as it did in other regions, said Gregory Leisch, chief executive of Delta Associates.
For starters, the earnings of many local buyers probably exceeded the income limits imposed by the tax-credit program, Leisch said. Also, homes in this region tend to be relatively expensive, which diminishes the impact of the tax credit, he said.
"If you're buying a home for $100,000, the tax credit means a lot more than if you're buying a home for $400,000, which is not uncommon in the close-in suburbs of Washington," Leisch said.
For all those reasons, sales in this area are not expected to drop in the second half of the year as much as they might in other markets that had a larger volume of tax-credit-driven sales, Delta executives said.
The area's robust sales activity helped clear out the glut of homes. The region has an average of 4.5 months of homes for sale, meaning it would take that long to sell all the homes on the market if sales continued at the current pace. Falls Church had 2.4 months' worth of homes on the market as of June, the lowest figure in the region.
Typically, average home prices rise quickly when the supply of homes dips below the six-month range. That rapid climb is unlikely to happen this time around because people are more disciplined about their buying decisions, Leisch said. Also, home prices had sunk so low that it's going to take longer for them to rebound.
Some home prices up
Still, the area's average home price rose in the second quarter to $398,445, up 11.3 percent from the previous quarter and 4.2 percent from a year ago. Prices were highest in what the report describes as the "core" jurisdiction -- the District, Arlington County and Alexandria, where the average sales price rose 2.4 percent from a year ago, to $509,156.
The strongest year-over-year gain was made in outer suburbs that were devastated by foreclosures and steep price declines. Collectively, prices surged 14.2 percent, to $320,514, in Loudoun and Prince William counties and Maryland's Frederick County. Those areas were the first hit when the housing market unraveled and, therefore, the first to recover.
Closer-in suburbs fared less well. The average price fell 1.1 percent, to $392,958, in Montgomery and Prince George's counties and Fairfax County. The report predicts price gains in this closer-in region later this year or early next year.
Another upbeat trend in the Washington area is that homes are not sitting on the market as long as they used to, the report said. Across the region, days on the market are either close to or well below the region's long term average of 76 days.