Regional market lags; bargain hunters spur hope for recovery

The RE/MAX Choice broker in Fairfax had 11 such bank listings last year, but her experience selling a four-bedroom contemporary with a built-in pool in Manassas City helped her vow not to handle another property that suffered the indignity of abandonment.

“This house had four fires set,” Northam said. “I was shocked by its condition the first time I visited.”

The property’s story reflects the depths of the problems in the Washington area’s real estate market, which is now weaker than the national average. But its sale also underscores forecasts that a recovery is not too far off even in the worst-hit neighborhoods.

Though vandals had stripped the house of its appliances, light fixtures and electrical outlets, the pool was a mess, and there was damage to the fireplaces — problems that would likely require about $100,000 to fix — Northam sold it only seven days after she took the listing.

The home attracted interest from bargain hunters who saw a chance to buy cheap in Owens Wood, an upscale 30-year-old enclave near Old Town Manassas, Northam said. The house sold for $420,000, far below the $500,000 or more that it would have fetched if it were in good shape. Its quick sale — and recent positive trends in the number of units sold and the length of time homes stay on the market in Prince William County — are glimmers of hope that the region’s residential real estate market has begun to climb back from its collapse.

Washington market loses traditional high ranking

While the Washington area’s jobless rate remains far lower than the rest of the country’s, the region’s real estate market last year lost its accustomed place near the top of national market surveys.

The average price for all types of area home sales fell by 19.2 percent in December from 2007; the national average dropped 18.2 percent, according to the Standard & Poor/Case-Shiller index. Although home sales in Washington itself and some close suburban neighborhoods remain relatively strong, a surge in foreclosures — especially in Manassas and surrounding Prince William County — helped push down prices.

Though there was an uptick in sales in the last two months of 2008 (a trend that continued into this year) there was a sharp drop in how much buyers were willing to spend, according to the Center for Regional Analysis at George Mason University. The average price of units sold last year fell to $394,700, down from $468,700 in 2007.

After four years of gains that outpaced the nation, prices dropped 15.8 percent for all types of housing in the region, the center reported. Average sale prices of single-family homes and town houses fell 19.6 percent to $466,500, down from $580,500 in 2007.

Condo prices fell by 8 percent after rising 4 percent in 2007.

The sales environment has been so bad for the region over the past two years that auctioneers have been hired to try to sell off homes. Mass auctions of foreclosed homes have become a weekend sport drawing hundreds to the Washington Convention Center to watch the bidding. Other spectators follow the action from remote settings with live Twitter updates of sales of distressed properties.

New-home builders — especially condo developers — also have resorted to staging auctions to unload unsold units, a sales strategy not seen in the area since the last real estate downturn in the early 1990s. Although these events are always touted as a routine device to help companies avoid long-term carrying costs, the auctions sharply define just how weak demand has been.

Fairfield Residential discovered exactly that in November, when it put 45 two- and three-bedroom condos up for auction at Ashmore at Germantown, a 404-unit luxury condominium just off Route 270. Minimum bids were set at $140,000 for 15 of the units that were previously priced for as much as $384,900. Several sold in the $200,000 range, but when further bidding stalled at $189,000, the builder halted the auction.

In the end, AHC Inc., an Arlington-based nonprofit affordable housing developer snatched up 29 Ashmore units at an average price of $186,000, with 100 percent of the $5.4 million financing provided by Montgomery County’s Department of Housing and Community Affairs. Now AHC will rent out the condos as affordable housing to families earning up to 55 percent of the area median income ($54,120 for a family of four). The lucky renters will move into brand-new homes with custom cabinets, ceramic flooring and soaking bathtubs.

Distress sales create a ripple effect

With foreclosures soaring and new homebuilders turning to auctioneers, it is inevitable that sellers of existing homes will feel the pressure to reduce prices even in the best neighborhoods.

That’s what Realtor Anslie Stokes with McEnearney Associates found in Washington’s cushy Woodley Park neighborhood, where she helped a buyer get a great deal on a 700-square-foot unit in a Great Addresses condo that dates to the early 1900s.

The couple she represented just signed a contract on a studio for the same price that it sold at five years ago. The current owners were not in any financial difficulty but needed to move someplace bigger to make room for a baby. The deal leaves them unable to recover the cost of $35,000 in renovations and upgrades since they bought the unit.

“While that is a terrible situation for the seller, for the buyer it’s fantastic,” Stokes said. “They knew exactly what they wanted and exactly what they wanted to pay, and they were willing to walk away over $500.”

The overall result is that even in Washington, housing values showed almost no increase last year, with the average price increasing only 1.1 percent to $543,000, up from $537,000 in 2007.

Prices fell in the Maryland suburbs by 8.4 percent (6.8 percent in Montgomery County; 12.5 percent in Prince George’s County). Conditions were most varied in the Virginia suburbs, where prices overall tumbled 23.6 percent. That was driven by the collapse in outlying Prince William and Loudoun counties, where prices plummeted 34.7 percent and 24.7 percent, respectively. But in closer-in Arlington County and Alexandria, the drops were only 3.5 percent and 6.3 percent, respectively. Prices fell 17.7 percent in Fairfax County.

Forecast turns cautiously positive

With sellers setting more realistic prices, the regional market might have begun climbing back from the bottom, according to the George Mason real estate forecast. The center’s report predicts the area will continue to see a decline in the ratio of listings to sales, concluding, “All indicators are in the positive direction, it will just take some time to work through.”

But the report also included a cautionary note about foreclosures. While the meltdown in subprime mortgages — those issued to buyers with low credit scores or a history of bad or no credit — has largely run its course, banks now are preparing to foreclose on so-called Alt-A loans made to homeowners who didn’t meet credit and income standards set by Fannie Mae or Freddie Mac. RealtyTrac reported that there could be as many as 3 million Alt-A loan foreclosures this year as lenders reset adjustable rates.

But the local drop in prices already has ended in the city and some of its closest suburbs. Improvement is expected in neighborhoods in or near the Beltway by the end of the year though prices likely will continue to fall in outer suburbs like Prince William into 2010, the George Mason forecast said.

The positive outlook already has begun to take hold in popular enclaves like the Del Ray section of Alexandria, where “mini bidding wars” have come back, Northam said.

There has even been some signs of life in Manassas and Prince William County, where 715 homes were sold last month, up from 402 in February last year. Although prices plummeted — down almost 34 percent in the same period — buyers responded by paying closer to the asking prices and taking homes off the market faster than last year.

Despite the stress, some older enclaves — even Owens Wood, where Northam sold the abandoned contemporary last year — still retain their solid, neighborly character, she said.

“The house itself was abandoned but the neighbors also adopted a cat that was abandoned by the previous owners,” Northam said.