Economists Predict Rosy Future for Northern Virginia!

Arlington Sun-Gazette, September 29-October 6, 2005
By Brian Trompeter

Area homebuyers can expect slightly higher interest rates and lower — but still quite healthy — housing price increases next year, economists and real estate experts said last Wednesday at the Northern Virginia Association of Realtors’ ninth annual economic summit at George Mason University (GMU) in Fairfax.

“In a nutshell, you couldn’t be in a better market,” said Stephen Fuller, director of the Center for Regional Analysis at GMU’s School of Public Policy.

The Washington area, which ranks highest nationally for per-capita federal spending, created 287,000 new jobs in the last five years — 134,000 of them in Northern Virginia, Fuller said.

“We’re working at jobs that produce more value,” he said. “That’s why we’re all tired. We’re working all the time. This is the economic model of the future.” The largest percentage of those jobs, about 22.5 percent, were in the high-paying business and professional services sector.

“The news is really upbeat,” said David Howell, vice president and broker of the McLean office of McEnearney Associates. “The whole key is a four-letter word: Jobs.”

Not all the news was good, though. Manufacturing jobs, something for which the area is not renowned, dropped by 0.1 percent, while jobs in information and media dipped by 0.4 percent.

The region has added 84,500 jobs since last August, but can build only about half of the 53,000 housing units needed to accommodate the new workers, he said.

Real estate continues to be a solid investment, with average 6.9-percent annual returns over the past 27 years, but rationality is returning to the market, Fuller said. For example, houses that used to be gobbled up in just four days now take an average of 18 days to sell — still far below the once-common three months.

As of August, the average housing sales price for all categories in Northern Virginia was $480,000. Many areas in the region boast high property values, so it’s not just a few areas that are distorting prices, Fuller said.

“You may have to work a tiny bit harder, but the rewards will be just as good,” he said. “There’s no bubble that I can see with our market in sight.”

Lawrence Yun, quantitative research director for the National Association of Realtors, said the Washington region’s economy is growing about 3 percent annually, thanks to high housing values that encourage people to spend money.

The Federal Reserve likely will raise interest rates a couple of more times to control inflation, Yun said. Because inflation rates have stayed low, lenders have not had to charge more for 30-year mortgages, he said.

Mortgage rates have hovered near 5.8 percent this year and likely will rise to about 6.4 percent in 2006, Yun said. Existing Northern Virginia home sales have declined 1 percent this year and may be off 3 percent in 2006, he said.

Homeowners still will see average $50,000 annual equity gains, even if housing prices level off somewhat, Yun said. While home prices will rise between 20 and 25 percent this year, they will increase only 8 to 12 percent in 2006, he said.

Another summit topic was the Base Realignment and Closure (BRAC) Commission’s recommendations to move thousands of military jobs out of the District of Columbia, Alexandria, Arlington and Baileys Crossroads.

But David Robertson, executive director of the Metropolitan Washington Council of Governments (COG), said the BRAC findings would not have a long-term negative effect.

Changes would not be implemented fully until 2010 and the vacated properties would be reabsorbed by the market in the following decade, Robertson said. Crystal City should make a quick recovery because of its convenient location and amenities, he said.

“There seems to be a never-ending need for upscale housing in that area,” Robertson said.

A downside to the BRAC proposals is it removes many employees from areas that are readily accessible by bus and Metrorail. The region would lose about 18,500 transit trips by 2010 and make up only about two-thirds of those by 2020, he said.

Christina Richardson of Weichert in Great Falls said she was pleased with the real estate market’s outstanding returns, but said some older customers on fixed incomes are moving because of rising tax assessments.

Barbara Aaron of Long & Foster in Reston said the presenters’ remarks mirrored her observations. The real estate market is stabilizing, with buyers writing more contracts contingent on the sale of their current homes, she said. One disturbing trend was the prevalence of speculators in the hot condominium market.

“That’s dangerous because they buy it at a low price and flip it before they settle,” Aaron said. “It’s not building value.”