Despite a cooling real estate market, affordable housing in the Washington region will become even more elusive this year as interest rates rise and home prices continue to outpace the national average, according to an annual report released today by the Joint Center for Housing Studies of Harvard University.
The median price of a home in the Washington region hit an all-time high last year at $424,700 — 5.8 times the region’s median household income — and although housing appreciation is expected to slow down, it won’t be enough to offset rising interest rates. A 30-year fixed-rate mortgage is expected to average about 6.9 percent during the first half of 2006, according to the National Association of Realtors.
Those figures put Washington among the top 10 most expensive metropolitan areas in the nation. San Jose had the most expensive median house price in 2005 at $744,500.
“[Washington has] always been a difficult market to buy in. We’ve always had an affordability issue,” said Rick Eul, assistant vice president for Bank of America and chairman of the Real Estate Finance Forum for the Northern Virginia Association of Realtors.
Would-be homebuyers in the Washington region need to make a “bare minimum” of $50,000 to qualify for a home loan, said Eul, and most have a household income of $60,000 to $70,000.
“Even though house appreciation is slowing, that does not mean affordability problems will go away,” said Nicolas Retsinas, director of the Joint Center for Housing of Harvard University.
Between 2004 and 2005, housing prices in the Washington area rose by more than 20 percent. While “the days of double-digit returns are behind us,” Retsinas said, housing prices are still expected to rise.
George Mason University’s Center for Regional Analysis projects that homes in the Washington region will appreciate by about 7 percent this year. Though that might be considered a healthy return on one’s money, it is not the white-hot rate that drew many investors into the region’s real estate market in the past several years.
“If you’re looking to buy a home and the primary motivation is investment, you’re going to be disappointed over the next few years,” Retsinas said. “Housing will be more of a consumption choice. It will be something to live in rather to invest in.”
PRICEY PROPERTY
Top 10 most expensive housing markets in 2005:
» San Jose – $744,500
» San Francisco – $715,700
» Los Angeles – $691,900
» San Diego – $604,300
» Honolulu – $590,000
» Bridgeport – $482,400
» New York – $446,500
» Washington – $424,700
» Boston – $414,00
» Sacramento – $375,900
Source: Joint Center for Housing Studies of Harvard University
