Shaken by events in the Middle East and local economic turbulence, Washington area consumers have become even more cautious in their approach to home buying, prompting fears in some circles that the residential real estate market here may be deteriorating into a full-scale housing recession.
Building permits have fallen dramatically, sales are off again and the softer parts of the market continue to weaken. Even the portions of the market that earlier seemed immune appear now to be slipping.
Many Washington area real estate experts -- but not all -- now say that what earlier appeared to be a painful but temporary market correction may instead be a longer-term phenomenon that could last another two years. Other experts said that the tremendous potential buyer demand in the Washington area will allow the market to recover more quickly.
Most experts, however, seem to think that the slowdown may last for a while.
"What looked like an adjustment in the Washington area housing market earlier this year may be turning into a full-scale housing market recession," said Robert Sheehan, vice president and economist for Regis J. Sheehan & Associates, a housing market research firm that tracks the region's building permits.
"Hell, we're already in a recession," said P. Wesley Foster, president of Long & Foster, the region's largest realty firm. He said the market has slipped to a level reminiscent of the housing recession of the early 1980s.
"There is an unease out there that is both job-related and war-related," Foster said. "There's no doubt about it. Those two things have gotten people out of the real estate market to some degree."
For some real estate agents, market conditions remind them of the lull before a storm -- depending, of course, on the events that unfold in the next few weeks.
The market "is either waiting to fall off the edge or smooth out," said longtime area real estate broker James Warkentin. "I'm afraid I think it's more likely to fall off the edge."
Others, however, including some home builders, believe the market has hit bottom and is now going to improve. The Washington market is strong and resilient, they say, and there still is powerful pent-up demand among those who were priced out of the market during the boom years.
"I think we've bottomed out," said Ray Chappell, chairman and chief executive of Prudential Preferred Properties, and a fourth-generation Washingtonian whose family has watched the area's steady growth. "We're close to it. We're either there or almost there."
Within six months, things should start to improve, said home builder Robert L. Mitchell of Rockville-based C-I/Mitchell & Best, who said the Washington area is experiencing a normal cyclical downturn.
The Iraqi invasion of Kuwait complicated matters a bit, he said, but the second half of the baby boom has yet to move up into more expensive homes. And when they do, he said, prices will rise sharply once again.
Another builder, Diane Basheer, president of Stanley Martin Cos., said that her company saw an upswing in would-be buyers at its 15 projects in August. Part of the draw, she said, was that Stanley Martin has managed to find new ways to cut costs, and is passing those reductions on to customers.
Market statistics, meanwhile, indicate continued slippage in the first six months of the year.
Housing construction around the region continues to plummet, with building permits for single-family homes down 40 percent in July compared with July 1989, and down 41 percent for the first seven months of the year compared with 1989, according to statistics compiled by Sheehan & Associates in McLean.
Apartment and condominium construction also dropped sharply, according to Sheehan. After a surge earlier in the year brought about by a rush to avoid new federal regulations governing handicapped accessibility, building permits fell 69 percent in July from July 1989 levels.
Overall, sales of new and existing homes still were sluggish through the first half of the year, dropping 14 percent for the first six months of 1990 compared to the same period in 1989, according to Rufus S. Lusk & Son, a Silver Spring-based real estate information company. The median price of single-family homes rose 4 percent during this period, and condominium prices rose by 7 percent.
The sales downturn and price-appreciation slowdown have even begun to reach their icy tentacles into areas that previously seemed unaffected, according to some local real estate experts and market statistics.
Sales of single-family homes fell in June, the most recent month for which complete statistics are available, in Prince George's County and the District, two jurisdictions that previously had held their own.
Even the condominium market, which for a year stood strong because properties were affordable to so many more people, is seeing less activity. Condominium sales throughout the region fell 24 percent in June compared with June 1989, according to Lusk statistics.
Meanwhile, some pockets of the market that were already soft have grown even weaker in the past year, according to recent home-sales statistics.
The luxury end of the housing market -- homes priced at about $400,000 and up -- began showing signs of sluggishness in late 1988. Since then, matters have deteriorated further: A study released this week by Lusk found that sales of homes priced between $400,000 and $1 million fell 18 percent in the first half of 1990 compared with the first six months of 1989. For homes priced over $1 million, sales have fallen 24 percent in the same period.
According to local real estate experts, the real problem is an erosion of consumer confidence caused by economic uncertainty in a region that had once considered itself recession-proof. For the first time, workers in both the public and private sectors are feeling uneasy about their job prospects. Several much-publicized business failures, including Garfinckel's department stores, Fantle's drugstore chain and the National Bank of Washington, the District's oldest bank, have left many workers wondering what the future holds.
Meanwhile, federal civil servants who long treasured their job security are also facing an uncertain future. Workers in the military and the defense industry foresee the prospect of serious cutbacks in federal spending.
About 350,000 federal government workers were notified in late August that they could face up to 22 days of unpaid furlough in fiscal 1991 if budget deficit negotiations failed and mandatory federal spending cuts were imposed.
And overhanging everything is the still-present threat of war with Iraq.
"Certainly everybody is impacted by the uncertainty the Middle East has brought on," said David Mayhood of the McLean-based Mayhood Co., a real estate consulting firm that specializes in the condominium market. "That affects everybody equally."