Grounds for Optimism:
Year-End Regional Review Offers Glimpse of Market Realities, Eventual Improvement
By Ann Gutkin, Government & Public Affairs Specialist
Cautious optimism was the theme at NVAR’s December 16 year-end press conference at the National Press Club in Washington, D.C. Spokespersons from the Greater Capital Area Association of Realtors®, Prince George’s County Association of Realtors®, Greater Washington Commercial Association of Realtors® and George Mason University’s Center for Regional Analysis joined NVAR to deliver news about this region’s real estate market.
Media representatives from local news organizations, including Channel 4 News, the Washington Post and WAMU radio, questioned industry leaders about housing data, foreclosures and what to expect in 2009 and beyond.
The Big Picture: Solid Local Fundamentals
John McClain, Senior Fellow and Deputy Director of GMU’s Center for Regional Analysis reassured listeners that, looking at the nation’s Gross Domestic Product as far back as the 1930s, the current recession is nothing like the Great Depression. “Consumer confidence has really taken a blow,” he said, “but the most recent data shows it’s ticked up a little bit.” He explained that consumer expectations for the future are rising for the first time in a long time, even as the current comfort level remains low.
The Washington, D.C. region differs from the rest of the country, McClain asserted. For each of the last four nationwide recessions, it was only during the 1991 recession that this region was significantly affected. In fact, during the 2001 recession, not only did we maintain employment levels, but overall the number of jobs increased. This past October, the Washington D.C. region posted 35,000 new jobs, one of just four of the 15 largest metro areas nationwide that showed job growth. An examination of job change by sector illustrates why this region is different. Losses occurred in the construction and retail trade sectors, while jobs were added in service and government sectors, resulting in the replacement of lower paying jobs with those that pay higher wages.
“The underlying fundamentals are fine for this region,” said McClain. “If you want to be in the real estate business anywhere in the United States,” he said, “here’s the place to be!”
Northern Virginia Foreclosure Facts
Jane Quill, 2008 NVAR Chairman of the Board, expressed Realtor® support of federal legislation to expand borrowing opportunities for buyers. She highlighted the National Association of Realtors® stimulus recommendations that are described more fully on page 7.
Discussing the foreclosure situation in Northern Virginia, Quill cited Virginia Housing Development Authority data illustrating that, “the overall loan foreclosure rate in Virginia was less than 1 percent at mid-year.” The presence of foreclosures in this region has brought prices down to a level that is “now contributing to a healthy rebound in sales activity,” said Quill. She shared data showing that in 2000, affordability was a problem mainly inside the Beltway. “At the peak of the real estate boom,” Quill stated, “affordability pressures were severe even in the outer suburbs. Today affordability is returning to pre-boom levels.”
Regional Variance: D.C., Prince George’s Paint Varied Economic Pictures
Joseph Himali, 2009 GCAAR President, spoke about the market differences that can occur in neighboring areas. He noted that 2008 median home prices in the District were actually above 2007 numbers, with year-to-date single family home prices up by 6 percent, and Condos and Coops posting a 4 percent increase.
Montgomery County prices remained lower than those of one year ago by about 10 percent for Condos and Coops and 8 percent for single-family homes. Himali emphasized the existence of many opportunities for prospective home owners. “First-time buyers have a shot at neighborhoods that they have not been able to afford for many, many years,” he concluded.
Prince George’s County experienced a dramatic drop in activity, according to Linda Simpson, 2009 PGCAR President. Simpson estimated that the 2008 year-end data would reveal numbers that are approximately 75 percent of 2007s total units and dollar volume sold. However, as does the rest of this region, Prince George’s County real estate is maintaining values ahead of the national average.
Simpson highlighted several factors that help to bolster the Prince George’s County real estate market. The county offers reductions in transfer taxes to public school teachers and police officers, and eliminates the tax for first-time home buyers. To address the large number of vacant foreclosures, the county applied for and received more than $10,000,000 in federal funding under the Housing and Economic Recovery Act. They are awaiting HUD approval for this neighborhood stabilization plan, which could go into effect by late February or early March of 2009.
Locally, the federal Base Realignment and Closure Plan will bring jobs and prospective homeowners to the Prince George’s area. The inter-county connector and completion of the second span of the Wilson Bridge should also make Prince George’s County a more desirable place to own a home, making it more accessible to the rest of the D.C. metro region. “Prices in the county are still the lowest in the area,” Simpson said, “and we expect to continue to see a number of home buyers coming to Prince George’s County for our more affordable prices.”
Expanding Jobs a Plus for Commercial Market
“One thing we’re very optimistic about,” said Christopher Sowick, 2009 President of GWCAR, “is the job growth in the metropolitan area.” Expansion in the government contracting and consulting sectors, he explained, generally translate into a demand for office space.
The metro region’s commercial real estate market is experiencing positive absorption through the first three quarters of 2008, with vacancy rates, “[2 percentage] points lower than the country as a whole,” said Sowick.
Sowick described a large discrepancy between vacancy rates inside and outside the beltway, with outer-lying areas showing climbing rates, particularly with the delivery of new space in the Dulles area. He predicted very little new delivery in 2009 and 2010, which will help equilibrium in those areas and emphasized that, “continued, sustained job growth will benefit this area.”
New Administration: New Hope for Regional Real Estate?
Panelists shared different views about the effect a new presidential administration might have on this region’s market. McClain opined that while some neighborhoods may show a slight uptick with the influx of new federal employees, many who will find employment under an Obama Administration already live here. He also broached the possibility of a change in philosophy away from existing levels of federal procurement that have benefited this region, but said that the need for contractors to assist with bailout efforts could offset a possible reduction in procurement jobs.
Himali predicted turnover in non-governmental entities, including lobbyists and non-profit employees with ancillary connections to the administration. He cited the need for permanent housing for those who have been in this area temporarily pending the outcome of the presidential election, and who may now purchase a home.
The take-home message for audience members at the 2008 year-end press conference, is that marketwatchers in this region will see a much brighter future than those covering other parts of the country. Economic fundamentals continue to be stronger than the national average, housing inventory absorption is picking up because of increased affordability, and 2009 promises welcome change for the D.C. metro area, especially later in the year.