As interest rates have gone down, "For Sale" signs have gone up in front yards all around metropolitan Washington, but so far the housing market's revival has been confined to the lower-priced "starter" homes found mainly in the far suburbs, local real estate experts say.
"The first-time buyers are coming back," said Richard Purvis, president of the Northern Virginia Board of Realtors. "We knew there was a desire to buy--the problem was affordability."
Realtors describe the starter homes as new town houses or condominiums priced below $90,000. Some such homes are found in Washington east of 16th Street NW and in the close-in suburbs of Silver Spring and Takoma Park.
But they occur in greatest numbers outside the Beltway in new housing developments around Manassas, Springfield, Sterling, Chantilly, Woodbridge and Dale City in Virginia and Gaithersburg and southern Prince George's County in Maryland.
Herman Methefessel, of Long and Foster Realtors, said the popularity of new lower-priced homes was dramatically reflected in the sales figures from the company's various branch offices. The sales office for the area around Andrews Air Force base in Prince George's County, where there is a concentration of these lower-priced homes, had 1,375 sales in 1982, most in the last quarter, Methefessel said. In the Manassas office there were 693 sales for the year compared with 270 sales in McLean and 277 in Alexandria and Mount Vernon, two high-priced areas, he said.
"The new-home sales in the boonies have really taken off because of the lower interest rates," said realtor Welene Goller.
"That has boosted the sales to make it look like the whole market has recovered but it really hasn't happened," Goller said. Overall in 1982, the area's housing sales dropped for the third consecutive year, from 34,869 in 1981 to 29,534 in 1982, a 15 percent decrease. Nationwide, home sales fell from 2.3 million in 1981 to 1.9 million in 1982, a 17 percent decline, according to the National Board of Realtors.
Prince George's County had the smallest drop in sales, down only 5 percent, while the District had the highest with 39 percent fewer sales, according to figures supplied by local boards of realtors and the District government.
But in each jurisdiction, including the District where prices are generally higher than in the suburbs, sales in the last four months of 1982 were up substantially over sales for the same four months in 1981, according to figures from area boards of realtors. In the Maryland suburbs there were 4,438 sales in the last quarter of 1982 compared with 3,146 for the same period in 1981. In Northern Virginia, sales there were 4,103 last fall compared with 3,228 in the fall of 1981. The District sales were up from 1,374 in the last quarter of 1981 to 1,455 for the same time in 1982.
The federal government triggered the boost in sales last August by dropping the rates on FHA (Federal Housing Administration) and VA rates, which had started the year at 16.5 percent, to 15 percent, then to 12 percent by November. Conventional lenders followed, lowering their rates from 15-17 percent to 12-13.5 by year's end.
These declines represented the housing market's first sustained relief since October 1979 from the strangling grip of high interest rates.
The lower rates make it easier for home purchasers by lowering the monthly payments they will have to make on their houses. For example, a homebuyer pays $1,087 a month in principal and interest payments for a 25-year $80,000 mortgage at 16 percent interest. That same mortgage at 12 percent for 25 years costs $842 a month--or $245 less--meaning an annual savings of $2,940.
The combination of lower interest rates and already low prices on the starter homes made them the quickest to begin selling, local realtors said.
"The housing in the price range that would sell FHA houses requiring a mortgage of less than $90,000 picked up a lot quicker," because a smaller down payment is needed, said Peter Rucci, head of Maryland and D.C. sales for Shannon & Luchs realtors.
For most of 1982, 15 to 20 percent of all sales handled by his company were financed through FHA or VA, said Rucci. But after September these represented 45 to 50 percent of the sales, he said.
Bad news continued, however, for agents trying to sell higher priced homes, especially town houses priced at $200,000 or more, according to the realtors.
"This market is still stagnant," Purvis said, because the prospective buyer of expensive homes usually already owns a home, which he often has difficulty selling.
The only segment of the market that sustained little damage was that category of houses selling in excess of $450,000. Purchasers of these homes usually pay cash, the realtors said.
Some in the real estate industry said while starter sales have picked up, a further decline in interest rates will be needed to spark a real recovery.
Rates "are still too high to qualify many people to buy," said Ken Kerin, vice president for research at the National Association of Realtors.
"A flashpoint for a booming housing market is below 12 percent," he added.
Peter Fowler, executive vice president of the Prince George's Board of Realtors, agreed. "The market is still depressed by interest rates. We will have to have lower interest rates yet. It's very simple. It's affordability."