Quarterly Economic Report - Job growth, mortgage rates pull the market in opposite directions
In its Economic and Market Watch Report, Metropolitan Region Information Systems (MRIS), which operates the Multiple Listing Service, clearly documents the changes that have transformed the area's real estate market from frenzied to balanced in the first quarter of 2006. Economists with the National Association of Realtors (NAR), which always paints the rosiest picture, provide upbeat analyses and forecasts that are nonetheless restrained and, perhaps, reassuring in the report.
Economist Ken Fears makes a strong, though hardly novel, case for low monthly mortgage payments having underpinned the boom of recent years. With 10 percent down, a $200,000 home would cost the purchaser $1,468 in monthly mortgage payments if the interest rate for the loan were 10 percent. If the rate falls to 5 percent, that payment would be only $955. "Affordability rises in this case, so people can buy a larger home or save the difference," Fears observes. "Over time, demand will rise and the price of the home will be bid up until the monthly payment on it is nearly the same as before the rate change. The new price is roughly $308,000, or a 50 percent increase in the home price for a 50 percent decline in rates."
This economist notes that in the wide area covered by MRIS, the average price has climbed by roughly 73.8 percent since 2000 and the average monthly payment has risen by approximately $545. "How will buyers continue to afford homes as prices rise?" Fears asks. "Luckily, the growing economy continues to create more jobs and grow incomes. NAR Research expects job growth to continue at a healthy clip, rising 1.6 percent in 2006 and 1.4 percent in 2007." More important, the trade group's economist says incomes are expected to increase 3.7 percent this year and 4 percent next year in contrast to 1.5 percent last year. "Rising employment will help to increase the pool of persons looking for housing, while rising incomes will help to offset the eroding power of rising mortgage rates."
Senior Research Forecaster Lawrence Yun adds immigration to the mix. He says strong demand and higher prices in Las Vegas, Phoenix and Washington can be attributed "in no small part" to strong immigrant populations." He cites a Philadelphia Federal Reserve Bank study showing that home prices in immigration-heavy neighborhoods rise much more slowly than in other neighborhoods in the local region. "That is, the 'there goes the neighborhood' reaction may be at work as established residents flee an area," he says. However, Yun says home prices in any metro region with a high number of immigrants in general rose at a significantly faster clip than those metro regions with little immigration. "More people translates into more housing demand," he declares.
Referring to 2.6 percent job growth in the first three months of this year in this region, Yun says higher mortgage rates have reduced affordability at the same time. "Home sales, as a result, are being pulled in different directions," Yun maintains. Although sales were 9 percent lower than the first quarter last year, home prices have continued to increase because, he says, "few are forced to sell in a job creating environment. " He forecasts the likelihood of the local economy catching the tide of growing strength in the national economy. "Home sales are expected to definitively turn positive once interest rates stabilized while jobs get added," Yun says. "The forecast is for 8 percent decline in home sales in 2006 followed by a 2 percent rise in 2006. Home prices will increase 5 percent in 2006 and then another 5 percent in 2007."
In his commentary, NAR Chief Economist David Lereah agrees, unsurprisingly. "There have been no bubbles bursting, as predicted by so many academics and Wall Street analysts during the past several years," he says, adding that the last time a bubble burst was in 1990-91 in Boston, where there was a sharp recession. Boston lost 15 percent of its labor force and the months' supply of homes soared to a remarkable 16. "Something had to give," Lereah continues. It was prices, which tumbled for the next four years. His assessment is that the health of expanding local economies differentiates D.C. and other regions from Boston.
"With job creation and income growth, households will continue to have the wherewithal to purchase property even in cooling local markets," the chief economist says. "That is a perfect recipe for a soft landing."
The average price fell from $558,000 in the last three months of 2005 to $508,100 in the first three months of this year. At the same time, the number of apartments and single-family homes on the market climbed from 2,559 to 3,628, the number of homes sold dropped from 2,063 to 1,606, and the average number of days on the market rose from 29 to 45.
Zip codes with the highest prices were 20007 ($871,600), 20008 ($750,500), 20015 ($732,100) and 20016 ($798,100). The lowest prices were in zips 20019 ($232,300), 20020 ($253,800) and 20032 ($207,100). From first quarter to first quarter, the zip with the greatest price increase was 20020, which rose 28.8 percent. Zip 20019 was close behind at 21.5 percent, and the 20036 zip went up 20.85 percent. Posting the biggest reductions were 20006 (down 15.97 percent) and 20012 (14.4 percent).
A total of 219 properties was sold in zip 20009 during the first quarter, followed distantly by 20002 with its 174 sales. The next most active zip was 20011 with 145 homes sold. Volume declined almost across the board; the exceptions were in 20012, which soared 31.82 percent; 20002, up 37 percent; and 20032, up 10.3 percent. Sales declined by percentages as high as 39 percent (zip code 20001), 37.1 percent (20003) and 36.3 percent (20016).
With regard to days on the market, the longest was 77, for zip code 20006, where only two properties found buyers at an average price of $225,000. Zips with more than 60 days on the market were 20004, 20007, 20017, 20024, 20032 and 20037. In all zip codes but 20015, sold prices tended to be a point or two below asking prices. In 20037, the sold price was, however, 96.1 percent of the list price.
Comparing the fourth quarter of 2005 and the first quarter of 2006, the average price tapered off from $515,400 to $507,400. The number of homes on the market swelled from 3,374 to 5,128 as the number of homes sold slipped from 3,691 to 2,776 and average days on the market went from 28 to 42.
The priciest zip codes were 20815 ($1,053,200); 20839 ($1,199,500); 20854 ($1,237,400); 20862 ($1 million); and 20868 ($1 million). The least costly zips, in the mid-$300,000s, were 20866, 20874, 20876, 20877, 20879, 20886 and 20906. The 240.6 percent price increase from the first quarter of last year in 20839 was the largest by far, but it derives from only two sales. (And they averaged 90.6 percent of the asking price.) In 20818, five sales led to a 36 percent rise. Prices generally went up since the 2005 first quarter, but they fell in 20816 (down 2.8 percent); 20817 (3 percent); 20855 (3.2 percent); 20860 (11.4 percent); 20876 (1.8 percent); and 20896 (3.3 percent).
More properties found buyers in zip code 20874 than in any other, but the total of 286 was 9.5 percent lower than the year before. Only two other zips had sales volume above 200; they were 20878, with 218, and 20906, with 207. Year-to-year increases in activity was highest in 20837 (up 40 percent), 20842 (50 percent) and 20886 (32.3 percent).
A single million-dollar home both in zips 20862 and 20868 took 131 and 152 days, respectively, to go under contract. (The one in 20862 finally sold at 83.3 percent of the asking price.) However, no other zip codes came close. In 20886, the days on the market averaged 86. It was 57 days in 20816; 95 in 20839 (on two sales); 56 in 20854; 86 in 20882; and 67 in 20896. Only in zips 20851, 20868, 20876 and 20912 did sold prices meet or exceed asking prices.
Prices went down on average from $579,300 in the fourth quarter last year to $559,500 in the first quarter, while the number of homes on the market surged from 831 to 1,261 and the number of homes sold fell from 704 to 616. Days on the market increased from 24 to 42 between the two quarters.
The county's most expensive zip was 22213 ($696,300), followed closely by 22205 ($685,400) and 22201 ($627,300). The least expensive was 22206 ($413,300), but 22209 was $426,800. Prices between first quarters rose by as much as 13.19 percent (13.2 percent) and fell by as much as 8.08 percent (22209) but mostly rose in the single digits. The only other decliner was zip code 22205 (down 4.6 percent).
Most of the county's sales occurred in 22204, which had 125 properties go under contract. Not far behind was 22201, with 109 and 28.2 percent growth compared with the same quarter of 2005. Other big gainers were 22206, up 24.3 percent to 87 units sold, and zip 22213, up 45.5 percent to 16. Sales activity in 22209 plunged 46.2 percent, to 42; the drop was 30.2 percent in 22202, to 30.
The only remarkable exception to average days on the market was in 22213, where the time was 19 days. In every zip code, sold prices were a couple of points lower than asking prices.
Economist Ken Fears makes a strong, though hardly novel, case for low monthly mortgage payments having underpinned the boom of recent years. With 10 percent down, a $200,000 home would cost the purchaser $1,468 in monthly mortgage payments if the interest rate for the loan were 10 percent. If the rate falls to 5 percent, that payment would be only $955. "Affordability rises in this case, so people can buy a larger home or save the difference," Fears observes. "Over time, demand will rise and the price of the home will be bid up until the monthly payment on it is nearly the same as before the rate change. The new price is roughly $308,000, or a 50 percent increase in the home price for a 50 percent decline in rates."
This economist notes that in the wide area covered by MRIS, the average price has climbed by roughly 73.8 percent since 2000 and the average monthly payment has risen by approximately $545. "How will buyers continue to afford homes as prices rise?" Fears asks. "Luckily, the growing economy continues to create more jobs and grow incomes. NAR Research expects job growth to continue at a healthy clip, rising 1.6 percent in 2006 and 1.4 percent in 2007." More important, the trade group's economist says incomes are expected to increase 3.7 percent this year and 4 percent next year in contrast to 1.5 percent last year. "Rising employment will help to increase the pool of persons looking for housing, while rising incomes will help to offset the eroding power of rising mortgage rates."
Senior Research Forecaster Lawrence Yun adds immigration to the mix. He says strong demand and higher prices in Las Vegas, Phoenix and Washington can be attributed "in no small part" to strong immigrant populations." He cites a Philadelphia Federal Reserve Bank study showing that home prices in immigration-heavy neighborhoods rise much more slowly than in other neighborhoods in the local region. "That is, the 'there goes the neighborhood' reaction may be at work as established residents flee an area," he says. However, Yun says home prices in any metro region with a high number of immigrants in general rose at a significantly faster clip than those metro regions with little immigration. "More people translates into more housing demand," he declares.
Referring to 2.6 percent job growth in the first three months of this year in this region, Yun says higher mortgage rates have reduced affordability at the same time. "Home sales, as a result, are being pulled in different directions," Yun maintains. Although sales were 9 percent lower than the first quarter last year, home prices have continued to increase because, he says, "few are forced to sell in a job creating environment. " He forecasts the likelihood of the local economy catching the tide of growing strength in the national economy. "Home sales are expected to definitively turn positive once interest rates stabilized while jobs get added," Yun says. "The forecast is for 8 percent decline in home sales in 2006 followed by a 2 percent rise in 2006. Home prices will increase 5 percent in 2006 and then another 5 percent in 2007."
In his commentary, NAR Chief Economist David Lereah agrees, unsurprisingly. "There have been no bubbles bursting, as predicted by so many academics and Wall Street analysts during the past several years," he says, adding that the last time a bubble burst was in 1990-91 in Boston, where there was a sharp recession. Boston lost 15 percent of its labor force and the months' supply of homes soared to a remarkable 16. "Something had to give," Lereah continues. It was prices, which tumbled for the next four years. His assessment is that the health of expanding local economies differentiates D.C. and other regions from Boston.
"With job creation and income growth, households will continue to have the wherewithal to purchase property even in cooling local markets," the chief economist says. "That is a perfect recipe for a soft landing."
District of Columbia
The average price fell from $558,000 in the last three months of 2005 to $508,100 in the first three months of this year. At the same time, the number of apartments and single-family homes on the market climbed from 2,559 to 3,628, the number of homes sold dropped from 2,063 to 1,606, and the average number of days on the market rose from 29 to 45.
Zip codes with the highest prices were 20007 ($871,600), 20008 ($750,500), 20015 ($732,100) and 20016 ($798,100). The lowest prices were in zips 20019 ($232,300), 20020 ($253,800) and 20032 ($207,100). From first quarter to first quarter, the zip with the greatest price increase was 20020, which rose 28.8 percent. Zip 20019 was close behind at 21.5 percent, and the 20036 zip went up 20.85 percent. Posting the biggest reductions were 20006 (down 15.97 percent) and 20012 (14.4 percent).
A total of 219 properties was sold in zip 20009 during the first quarter, followed distantly by 20002 with its 174 sales. The next most active zip was 20011 with 145 homes sold. Volume declined almost across the board; the exceptions were in 20012, which soared 31.82 percent; 20002, up 37 percent; and 20032, up 10.3 percent. Sales declined by percentages as high as 39 percent (zip code 20001), 37.1 percent (20003) and 36.3 percent (20016).
With regard to days on the market, the longest was 77, for zip code 20006, where only two properties found buyers at an average price of $225,000. Zips with more than 60 days on the market were 20004, 20007, 20017, 20024, 20032 and 20037. In all zip codes but 20015, sold prices tended to be a point or two below asking prices. In 20037, the sold price was, however, 96.1 percent of the list price.
Montgomery County
Comparing the fourth quarter of 2005 and the first quarter of 2006, the average price tapered off from $515,400 to $507,400. The number of homes on the market swelled from 3,374 to 5,128 as the number of homes sold slipped from 3,691 to 2,776 and average days on the market went from 28 to 42.
The priciest zip codes were 20815 ($1,053,200); 20839 ($1,199,500); 20854 ($1,237,400); 20862 ($1 million); and 20868 ($1 million). The least costly zips, in the mid-$300,000s, were 20866, 20874, 20876, 20877, 20879, 20886 and 20906. The 240.6 percent price increase from the first quarter of last year in 20839 was the largest by far, but it derives from only two sales. (And they averaged 90.6 percent of the asking price.) In 20818, five sales led to a 36 percent rise. Prices generally went up since the 2005 first quarter, but they fell in 20816 (down 2.8 percent); 20817 (3 percent); 20855 (3.2 percent); 20860 (11.4 percent); 20876 (1.8 percent); and 20896 (3.3 percent).
More properties found buyers in zip code 20874 than in any other, but the total of 286 was 9.5 percent lower than the year before. Only two other zips had sales volume above 200; they were 20878, with 218, and 20906, with 207. Year-to-year increases in activity was highest in 20837 (up 40 percent), 20842 (50 percent) and 20886 (32.3 percent).
A single million-dollar home both in zips 20862 and 20868 took 131 and 152 days, respectively, to go under contract. (The one in 20862 finally sold at 83.3 percent of the asking price.) However, no other zip codes came close. In 20886, the days on the market averaged 86. It was 57 days in 20816; 95 in 20839 (on two sales); 56 in 20854; 86 in 20882; and 67 in 20896. Only in zips 20851, 20868, 20876 and 20912 did sold prices meet or exceed asking prices.
Arlington County
Prices went down on average from $579,300 in the fourth quarter last year to $559,500 in the first quarter, while the number of homes on the market surged from 831 to 1,261 and the number of homes sold fell from 704 to 616. Days on the market increased from 24 to 42 between the two quarters.
The county's most expensive zip was 22213 ($696,300), followed closely by 22205 ($685,400) and 22201 ($627,300). The least expensive was 22206 ($413,300), but 22209 was $426,800. Prices between first quarters rose by as much as 13.19 percent (13.2 percent) and fell by as much as 8.08 percent (22209) but mostly rose in the single digits. The only other decliner was zip code 22205 (down 4.6 percent).
Most of the county's sales occurred in 22204, which had 125 properties go under contract. Not far behind was 22201, with 109 and 28.2 percent growth compared with the same quarter of 2005. Other big gainers were 22206, up 24.3 percent to 87 units sold, and zip 22213, up 45.5 percent to 16. Sales activity in 22209 plunged 46.2 percent, to 42; the drop was 30.2 percent in 22202, to 30.
The only remarkable exception to average days on the market was in 22213, where the time was 19 days. In every zip code, sold prices were a couple of points lower than asking prices.
posted by Service You Can Trust Team at
4:44 AM
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