National trends could drag down D.C. area housing market's gains
Thursday, December 30, 2010; 11:55 AM
Although Washington area housing has outperformed the national market , which has been devastated by the twin ills of unemployment and foreclosure, the question going into a new year is whether the rest of the country can follow the D.C. area into recovery - or whether the local market will be dragged down by national trends.
Economic forecasters are singling out the housing sector as a weak spot even as the rest of the economy appears to be gaining steam. About 57 percent of the economists and real estate experts surveyed by Macro Markets in December said they don't see home prices recovering until some time in 2012. About 35 percent said they don't see that happening until 2013.
The recent run-up in mortgage interest rates from record lows and some lenders' decision to temporarily halt evictions while they sort through foreclosure paperwork errors only add to general unease about the housing market's direction.
The Washington region has suffered less than many other parts of the country, but it, too, continues to have problem areas. From January through November, median prices dropped in Maryland's Prince George's, Calvert and Frederick counties, compared with a year earlier, according to George Mason University's Center for Regional Analysis. Prince George's showed the steepest decline: 15.6 percent.
As long as people are unemployed or working for reduced pay, they are unlikely to buy a home and saddle themselves with a mortgage. Meanwhile, homeowners who have been out of work for long stretches are falling behind on their mortgages, adding to the foreclosure glut.
Mark Zandi, chief economist at Moody's Analytics, estimates that 4 million homes were in foreclosure or on the brink of it heading into this year. That's in addition to the 6.2 million homes that were foreclosed upon between 2007 and 2010. Together, those 10.2 million foreclosures are equivalent to the populations of North Carolina and Vermont combined.
Clearing these homes off the market is key to a recovery, because foreclosures tend to drag down prices nearby. As 2010 drew to a close, foreclosures and other distressed properties made up about one-third of existing home sales, according to the National Association of Realtors. Home prices were 26 percent off their 2006 peak.
With prices down from their heights, about one in four borrowers in this country is underwater, meaning that any equity they may have had has vanished and they now owe more on their mortgages than their homes are worth, according to financial research company CoreLogic. That threatens to exacerbate the foreclosure crisis, because it leaves these borrowers unable to refinance or sell their homes if they face a job loss or other setback.
U.S. Treasury Secretary Timothy F. Geithner cited all these factors as challenges in the year ahead when he testified before the Congressional Oversight Panel in December.
"The most important thing that's going to affect the trajectory of house prices, the overall number of foreclosures, the ability of people to stay in their home, is what the government is able to do to get the unemployment rate down much more quickly," Geithner told the panel.
The Washington housing market has held up better than many parts of the country in part because of its relatively low unemployment rate and robust supply of high-paying jobs that helped fuel demand for homes.