washingtonpost.com
A housing market out of sync

By Dina ElBoghdady
Washington Post Staff Writer
Sunday, September 5, 2010; A1

Jack Donnelly put off selling his Capitol Hill rowhouse for three years until he thought he saw glimmers of life in the housing market this past spring. At $950,000, he said, the red brick Victorian is a "solid deal."

Jackie Wright sees it differently. The row house is one of many homes competing for her attention in uncertain economic times. She's been looking to buy a home in the District since April but is in no rush to commit, partly because she thinks mortgage interest rates - and prices - could sink even lower.

As with many prospective sellers, Donnelly's hopes for his rowhouse were forged in the past, before the housing bust, when homeowners assumed that real estate prices would inexorably rise. They expected to reap vast windfalls when their houses sold. But Wright's eyes are turned to the future. She's anxious about whether the coming months will bring more gloomy economic news and reluctant to gamble on a major purchase, especially if a flagging market might actually mean better deals ahead.

"I keep thinking, 'Do I really want to do this now? Shouldn't I wait to see what happens in the next few months?' " Wright said.

Across the Washington region and around the country, the expectations of buyers and sellers are out of whack, thwarting deals that could potentially lift the U.S. housing sector from its long funk. The nascent rebirth of the market earlier this year proved to be a mirage.

Despite record-low interest rates, many would-be buyers are retrenching, hamstrung by meager growth in their wages, gripped by fears over the possibility of losing their jobs or another recession. Sales of existing homes plunged in July to the lowest level in more than a decade, and sales of new homes were slower than at any time since the government started tracking the data in 1963. The results were far worse than some of the most pessimistic economists had expected and added to the doubts nagging at Wright and other prospective buyers, even in areas such as Washington that have been relatively insulated from the housing bust.

There are now so many homes for sale, and so few of them are selling that, at the current sales pace, it would take over a year to clear the existing inventory on the U.S. market. That is more than double the time required in a healthy market and up significantly just since June.

"That's a powerful cocktail working against the housing recovery," said Mike Larson, an analyst at Weiss Research. "There's going to be a long-lasting psychological hesitancy for ordinary buyers to believe again in the dream of building wealth through homeownership."

Open-house blues

The disconnect between buyer and seller was on full display last weekend at an open house to showcase Donnelly's home. The three-bedroom house, just up the street from Lincoln Park, had been on the market since early June, unable to snag a buyer in a crowded field of competitors. Within a quarter-mile radius, there are 11 other single-family homes on the market with similar prices as the summer selling season draws to a close.

As the open house entered its third hour, Leisa Hart, the real estate agent charged with selling the home, was pacing the living room, looking out the windows at the sidewalk expectantly. She had sent a mass e-mail to past clients, current customers and other agents urging them to take a look at the home. Her office manager at Long & Foster reached out to all the firm's D.C. offices and D.C.-licensed agents to stir interest. But the crowds never came, and the sales material sat mostly untouched on the granite kitchen counters.

"Where are my people?" Hart asked, shaking her head. "I put out an all-points bulletin. Where are they?"

Only eight parties showed up, walking past the balloons Hart had tied to the wrought-iron fence outside. Neighbors gardening in the yard next door glanced up to check out the rare visitors. One was Wright, who had been in the neighborhood meeting a friend when she spotted the for-sale sign. She quickly determined the asking price was too much.

"This community normally moves like the wind," Hart said. "But these days, everybody wants a deal. . . . They want the sun, the moon and the stars, and they want to get it for $100,000 less."

Waiting game

Back in 2004, when Donnelly and his new bride, Roxanne, bought the home, they'd paid $645,000. It was a fixer-upper in a transitional neighborhood. And the finances had been a stretch. But with a child on the way, they had been ecstatic to find a place they could afford.

They converted the space from apartments into a single-family home and installed central air conditioning. The renovations totaled more than $150,000, not including labor costs, Donnelly said. Three years later, after the tremendous run-up in U.S. housing prices, he decided he wanted to sell it for $1 million.

By then, however, the housing market had begun to sour, and he figured the home couldn't fetch what he thought it was worth.

"I decided to do the conservative thing, collect rent on this place and wait a couple of years for the housing market to improve," Donnelly said.

Donnelly and his growing family couldn't stay put. They already had purchased a more spacious home in Takoma Park.

"We were stuck in the mentality of five or six years earlier, when it was hard to find a house," Donnelly said. "We thought it would be harder to buy a place than to sell one. So we bought a house first and became two-house homeowners in a weird economic climate when people were scared and losing their jobs and losing value in their homes."

Donnelly said he's had no trouble renting the rowhouse since then. But he does not want to be landlord forever.

June seemed a good time to sell, especially coming off a surge in early spring sales, when people were rushing to take advantage of a tax credit for home buyers before it expired April 30. At the same time, he was heartened by the continuing decline of mortgage interest rates, which reflects the enormous demand of investors for mortgage securities issued by Fannie Mae and Freddie Mac.

"My assumption was times are improving, the housing market has been buffered, and prices have dropped but not as much as other places," he said. "Plus, expectations have been managed and I'm not looking to sell for $1 million anymore."

By all measures, the Washington region escaped the upheaval that staggered housing markets in places such as Florida, California and Nevada. Sales in the Washington area began recovering from the housing crisis two years ago, according to George Mason University's Center for Regional Analysis, and existing-home sales were up from month to month in most counties over the first half of this year.

In July, U.S. sales of existing homes plunged 27 percent from the previous month, according to seasonally adjusted numbers compiled by the National Association of Realtors.

But even the regional market has taken a hit this summer. In the Washington area, sales of existing homes slipped nearly 19 percent in July from June, according to non-seasonally adjusted numbers compiled by John McClain, a senior fellow at the George Mason center. There is now a seven-month supply of existing houses on the local market.

"In spring, sales and prices had improved, but the benefits of the tax credit are now past us, the job market has weakened and the stark reality has set back in that the housing market is still struggling," said Mark Zandi, chief economist with Moody's Analytics. "It's right back into the soup."

And while Donnelly has trimmed his expectations, shaving $50,000 off the $1 million price he'd originally wanted, the reduction so far hasn't been enough to win over buyers.

So the weekends keep passing. Nearly three months. Zero offers.

'This is not the right time'

Wright has been renting an apartment in Silver Spring for years. For a long time, she had her life mapped out: get married first, buy a house and have a baby. This spring, she rethought her plan. "I realized I don't have to do things in any sort of order," Wright said. "If Prince Charming doesn't show up, I can still have a fabulous house."

So she began looking for a small, well-built older home in the District, where she works as an information technology manager. The tax credit and low interest rates were added motivations, she said. She's been searching for properties online after work and occasionally going to open houses.

While she stopped by Donnelly's house on a whim, Wright lingered for a time.

"I look at many houses to try and figure out what my wish list is versus the reality," she said. "I want to know, 'What does a home at this price level look like?' "

She's been hesitant to pull the trigger. As a single woman, Wright has no second income to fall back on if she makes a bad financial decision, such as buying a home that plummets in value. The constant drumbeat of gloomy economic data is wearing on her: month after month of high unemployment numbers and depressing figures for consumer spending, a key to any economic recovery.

"Anyone who has been doing any analysis has got to be taking a pause and saying, 'This is not the right time,' " she said.

Also conspiring against a rebound in housing are tighter lending standards that make it tougher to qualify for a mortgage. Meanwhile, foreclosures are on track to exceed 1 million this year, putting downward pressure on home prices and adding to the excess supply of homes.

"Even the mortgage bargain of a lifetime is not enough to bring the market back to life," economist Paul Dales wrote in a note to his clients last week.

Wright, for one, is not about to rush out and buy a house because of those low rates. She said she doesn't expect them to go up anytime soon. Home prices may rise, she said, "but they could also drop."

Hart, the real estate agent, insisted that Donnelly's house is properly priced. She said five other comparable homes within short walking distance are for sale at similar prices - $900,000 to $974,000. She said others have sold within that range recently.

Donnelly has his doubts.

"Frankly, I don't know what number makes sense anymore," he said. "It's not a normal market. . . . Some houses are gone, and some in the same price range are not going. I can't gauge what's real and what's not."

He acknowledged that he'd been thinking of reducing his asking price, lowering his goal for a second time.

In fact, by Saturday he'd dropped the price to $895,000.

And while that may narrow the expectations gap with prospective buyers, it might not be enough. If he fails to attract a buyer soon, Donnelly said, he would take the house off the market, possibly refinance it at lower rates and keep on renting it out.

That would be one more sale that never took place.

Research editor Alice Crites contributed to this article.

Post a Comment


Comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content that you post.

© 2010 The Washington Post Company