Former Marine turned real estate investor Justin Pierce writes an occasional column about his experiences buying and selling houses in the Washington area.
A lot of positive signs indicate the real estate market is heating up. Inventories are down. Prices are consistently going up. But before you rush out to buy that dream home, do your homework.
Yes, median prices in general have been climbing over the past five years. Northern Virginia median home sales prices are up more than 31 percent from the winter of 2009.
The most important thing to keep in mind is that when you buy a home, you are buying into a neighborhood, not a region. The median prices at the neighborhood level can look much different than the region as a whole.
But keep in mind the cyclical nature of the local real estate market. The chart below shows the difference between median prices in the summer and the winter.
There are two things to take from this. First, statistics can be highly manipulated. By comparing a seasonal peak price to a seasonal low price I can make the market look even better and I can make it look worse by doing the opposite. Second, it illustrates the point that regional statistics rarely reflect what’s happening at street level. I’ve noticed that homes are easier to sell in the spring but in the past five years I’ve never banked on the price of a home going for 20 percent more or 20 percent less just because of the season.
One good example is Woodbridge’s Zip code 22193. Woodbridge was one of the hardest hit areas in the 2008-09 housing collapse, according to Virginia Association of Realtors quarterly housing reports.
Still, Woodbridge’s recovery has outpaced the region’s. The median price low of $135,000 came in November 2008. Last month, the median price was $259,900. That’s a staggering 48 percent increase.
A side-by-side comparison of actual subdivisions can help to illustrate how different actual home prices can be from national, regional and even city real estate statistics.
For instance, from September 2008 to January 2009 in the Murumsco Woods subdivision, the average sales price for detached single-family homes of about 1,000 square feet was $115,000. In the same period of 2012-13, the average sales price for homes with the same criteria in that subdivision had nearly doubled to $221,000.
When the downturn hit, many people in this subdivision who didn’t have to sell held onto their homes. As a result, the vast majority of sales were in the distressed category. In winter of 2009, there were dozens of detached single-family homes listed for sale for less than $100,000. Today, there isn’t a single-family home in Woodbridge listed for less than $150,000.
Contrast that with the more upscale Ashland subdivision. There are about 1,000 homes in this subdivision that were built between 1998 and 2005. Most are on about a quarter of an acre with on average four bedrooms and a two-car garage.
From September 2008 to January 2009, the average sales price was $434,713. But if you look at the past four months, the average sales price fell to $411,133. That is a drop of about 5 percent.
I was actually surprised to see a 5 percent drop so I pulled prices for two other subdivisions in Woodbridge that are priced a little lower than Ashland but would still be considered move-up communities. One, Cardinal Ridge, had an increase in average price of about 12 percent while the other, Cardinal Crest, basically had no change over the same five year period.
Woodbridge is a somewhat exaggerated but good example of what has happened in most of our area. Prices on distressed and low-cost homes have risen dramatically. In Woodbridge, the median home price statistics have been distorted by home prices at the lower price point, nearly doubling, while the other home prices have gone up very little.
It’s good to be aware of regional statistics but it is more important to look at the prices of homes located near the one you want to buy before making your home purchasing decision. Appraisers do not care about regional sales. They don’t look much beyond the boundaries of the home’s subdivision.
Neither should you.
Justin Pierce is a real estate investor in Northern Virginia. In his occasional column, he will write about investing in real estate.