July, 2006

Market Commentary

The #1 reason home prices fall.

A local economist provides his guidance on how to predict home prices.

Last month, Corus Home Realty attended a presentation by Dr. Stephen S. Fuller of George Mason University. Dr. Fuller is widely recognized as an expert on the Washington area economy and the local real estate market. We know Dr. Fuller and respect his opinions.

Dr. Fuller is frequently asked about housing bubbles and whether local home prices are likely to fall. When asked whether a housing bubble will burst in the Washington market, his answer is “no.” His basis for this answer is applicable both to the Philadelphia / Delaware Valley and Washington real estate markets.

According to Dr. Fuller, job growth is the #1 factor affecting home prices. Interest rates, housing supply, and consumer sentiment also contribute to home prices, but their impacts are secondary to job growth. As long as job growth remains strong, a significant decline in home values should not occur.

Over the last 5 years, the Washington DC Metro area added 287,000 jobs – more jobs than any other city in America. By contrast, the Philadelphia Metro area added 42,000 jobs. Heavy job growth in the Washington area has fueled housing demand, but the region’s ability to add to housing supply is somewhat limited. Demand for housing continues to outstrip supply, and the region currently has a deficit of 106,000 housing units. This supply vs. demand issue has resulted in 20%+ home value increases in 2004 and 2005.

Let’s compare the Washington example with a market that has experienced significant declines in home values. Between 1990 and 1995, home values in the Los Angeles Metro area plummeted by 22%. Within some submarkets, values actually declined by more than 40% during this period. What happened here? At the end of the Cold War, major defense spending cuts occurred, many of which were centered on aerospace projects. The aerospace industry represents a substantial portion of Southern California’s economy, and during this period, 485,000 jobs were lost from the Los Angeles economy. As individuals lost their jobs they were forced to sell their homes, while others found jobs in other cities. This created a large inventory of homes for sale, which depressed prices.

We recognize that the Philadelphia metro area has experienced steady job growth year to year, and has enjoyed a corresponding steady rise in home values. Given the region’s diversified local economy, we expect this pattern to continue over the next several years. But given Dr. Fuller’s observations, what does the future hold for the Washington area?

Dr. Fuller is very bullish on the Washington region’s future job growth. He predicts that over the next four years, the economy will grow by an additional 256,000 jobs – a 20% faster rate than the previous four years. While other economists may disagree on the number, there is widespread agreement that the area will add substantial jobs. This growth will be fueled primarily by increases in U.S. Government spending, which comprises 35% of the region’s economy. As the nearby chart shows, this job growth will exacerbate the region’s housing shortage.

Despite the long term outlook, expect some short term turbulence. Average days on market throughout the Washington region is now 62 days, and inventory has tripled since last year. According to Dr. Fuller, investors purchased many properties over the last few years and are now “cashing out” on their investments, contributing to a spike in supply. He predicts that within 12 to 18 months, investor-fueled “panic selling” will end, and supply and demand within the market will become more balanced.

Market Commentary

The lowdown on real estate assessments.

Buying a home? Even with home values staying flat, your tax assessment may still be going up. It depends on where you live.

Property taxes are a key cost of owning a home. Smart homebuyers will evaluate and budget annual property tax costs (along with principal, mortgage interest, and insurance) in determining how much home they can afford. Property taxes are based on the home’s value, as assessed by the local municipality, and a big jump in the value the municipality places on your home can mean an unpleasant increase in your tax bill.

Even though property values have largely leveled off in 2006, it’s possible that you might have a big increase in your 2007 assessment. It all depends upon where you live and how your local government calculates property values.

For those of you in Virginia, expect your taxes to remain flat. Virginia counties reassess properties on an annual basis, and adjustments are made each year to reflect the market. Large annual increases in property values over the past few years have already been recognized in 2006 tax assessments. For example, in Fairfax County, assessments increased by 23% between 2005 and 2006. Given the current flattening of real estate values there, expect 2007 assessments to change by a maximum of 3%.

Pennsylvania taxes are relatively stable, but there is a wild-card factor. In Montgomery County, residents pay three local taxes – county, township, and school. Assessments are based on 1996 home values, which greatly undervalues the home relative to its current worth. It is unclear whether or when the county will begin using more current values, but any future policy change could have a big impact.

Buyers of new homes get hit hard in Pennsylvania. When a new home is constructed and purchased, the county assesses the property at its current worth. This tax assessment will be far higher than a comparable older home, which is being taxed at a 10 year old valuation. This is important information for those of you considering the purchase of a new home.

Maryland and DC residents may be in for a surprise. Both jurisdictions reassess properties every three years. So, if 2006 is the third year of your home’s assessment period, you’ll be reassessed in 2007. Unfortunately, the new assessment will reflect those big value increases that Maryland and DC homes experienced in 2004 and 2005. So despite flat 2006 prices, your tax bill is going up. Fortunately, both Maryland and DC have laws that cap tax increases at 10% per year.

So, if you’re considering the purchase of a home in Maryland or DC, it will be worthwhile for you to learn when the home will be reassessed and whether an increase it taxes is on the horizon.

Market Stats.

Today’s real estate market, by the numbers.

Key statistics on real estate markets in Pennsylvania, DC, Northern Virginia, and Suburban Maryland.

The chart below provides a snapshot of key real estate markets within the Corus service area, and shows how the market compares with the same time last year. Here are a few of our observations about these figures:

• In most markets, it takes more than twice as long to sell a home as it did last year.
• In the Delaware Valley, the number of active listings is 50% greater than last year; in the DC area, there are 2 to 3 times as many listings.
• The high inventory level is getting worse. Last month, the number of new listings hitting the market was 2 to 3 times the number of properties that went under contract.
• Home prices have held steady. With only the exception of Loudoun County, VA, average home prices are up between 1% and 11% in each of our markets.

Home Maintenance

Save your basement for less than $100.

After last month’s heavy rains, we asked an expert for advice on how to prevent basement flooding.

A few weeks ago, the Mid-Atlantic region had its heaviest rains in decades, with some areas receiving between 10 and 20 inches of rain within a few days. Unfortunately, several of our clients, neighbors and friends reported that their normally dry basements had taken on some water. In response, we wanted to see how a homeowner could prevent this type of flooding from occurring in the future. We checked with Stoney Coppage, a waterproofing expert with NV Waterproofing of Gainesville, Virginia.

According to Stoney, one of the best and easiest ways to keep rain water from entering your basement is extend your downspouts. During an average rain storm, a downspout can discharge 60 gallons of water per minute. While concrete splash blocks can help move rain water away from the foundation, this solution only moves water an average of two to three feet. To effectively keep this water away from the foundation, you really need to discharge the runoff water from your gutter system at least six to ten feet away from your house or further whenever possible. Mulch and garden beds located around the edges of foundations actually retain more water than normal soils, so it’s crucial to move the water beyond these areas, further from the foundation.

Extending your downspouts using 4” flexible black plastic pipe is an excellent way of accomplishing this goal. The pipe is inexpensive, is widely available at local hardware stores, and can easily be installed on the ends of your downspouts.

While the downspout extension can be positioned on top of the ground, it is preferable to bury the downspout extension. This also improves the appearance of the setup. Below, Stoney has provided step by step instructions on how to install the system in this way.

Items you’ll need (for one downspout discharge):

1. Minimum Six to ten feet of 4” solid flexible black plastic pipe.
2. One plastic 4” black plastic downspout adaptor. Make sure the adaptor is the same size as your downspout 2”x3” or 3”x4”.
3. One 4”- 90 degree black plastic elbow joint.
4. Clean-Out option : 4” – black plastic “Y” joint and 4” end-cap.

New Developments: Montgomery County, MD

Maryland’s Intercounty Connector is a Go!

Look for construction on Maryland’s ICC to begin this fall. Here’s what it means to area real estate.

Originally conceived in the 1950s, Maryland’s Intercounty Connector project has cleared its final hurdle, which means that construction on the highway will begin this fall. The tolled, 6 lane, 18 mile highway will connect I-270 in Montgomery County with I-95 and Route 1 in Prince George’s County.

On May 30th, the project received final approval from the federal government -- the last of its environmental, economic, financial, and community-related hurdles. It is still possible that a potential lawsuit from project opponents could cause delays, but state highway officials are confident that construction will proceed.

The project has faced years of controversy. Opponents argue that the project will negatively impact the local environment, promote sprawl, divert transportation funds from other projects, and harm communities in its path. In 1999, Gov. Parris Glendening had halted planning on the road. But proponents, including current Gov. Bob Ehrlich, hope that the project will help alleviate the region’s severe traffic problems and divert traffic away from secondary streets.

The road will begin at the I-370 spur from I-270 in Rockville, running east past Redland, Norbeck, Olney, Norwood, and Colesville. It will pass I-95, eventually ending at Route 1 north of Beltsville. This road could be considered a portion of an “outer beltway” around Washington, DC., a highway system that was proposed in the 1950s.

If you live in Maryland or are considering buying a house there, why is this important to you? Here are some ways the project may have an impact.

In building the highway, 58 homes will be destroyed. But the highway will also pass in close proximity to thousands of other homes. It is important to be aware of the noise this road will generate in nearby communities. If you’re buying a home in those areas, check the ICC’s path relative to the home’s location.

Communities such as Olney and Colesville have been somewhat difficult to access from Washington, DC and the I-270 corridor. Beyond the beltway, commuters to these areas must use secondary streets. The ICC will make these areas much more accessible from major employment centers. We anticipate significant residential growth in these locations.

The road will have a significant positive impact on Baltimore Washington International Airport (BWI). To date, it has been difficult to access BWI from the I-270 technology corridor, and many residents of that area have found Reagan National or Dulles Airport (both in Virginia) to be more convenient. This will change as the ICC makes I-95 north much more accessible from Rockville, Potomac, and Gaithersburg. Over the coming years, we could see a lot of new commercial and residential development around BWI.

A map of the ICC route is available on the Baltimore Sun’s website:
Click here

You can learn more about the project on the ICC’s official web site:
Click here

Notable Homes: Washington, DC

Does your Senator need a place to stay?

This neat condo is only 3 blocks from the U.S. Capitol.

For Sale: 308 East Capitol Street NE #10, Washington, DC 20003, $749,000.

From time to time, you may hear news reports of marathon sessions of Congress, filibusters, and late night voting. During these times, convenient access to the U.S. Capitol can be important to members of Congress and their staffs. This month, we’ve identified an updated 2 bedroom condo that is only 3 blocks from the U.S. Capitol. It’s hard to find a home that’s any closer.

This property is an English basement styled condo unit in an older building. It has two bedrooms and two full bathrooms. It has an outdoor patio and off-street parking. The unit has been heavily updated with sophisticated finishes – granite counters in the kitchen and a steam shower in the master bath. The unit is exceptionally large for a 2 bedroom – 1750 square feet. Despite the new finishes, the building was constructed in 1880.

Standing in front of the building, you have dead-on views of the front of the U.S. Capitol, and the Capitol dome. Yet, the building is set off the street, which provides the unit with a measure of privacy and quiet.

One potential issue with the building is its English basement configuration. Although these units often have interesting patios, the fact that they’re partially underground means that the unit has limited light. Also, some condo buyers simply insist on upper floor units. Also, the $749,000 price is above average for a two bedroom unit in the city.

However, if you desire a location that is extremely convenient to the Capitol, this unit could be worth a look. This home has been listed since June 9 with W.C. & A.N. Miller Realtors.

If you would like to see this home or would like to request more information, contact Eric Rossum at 703-827-0075

Notable Homes: Villanova, PA

A (very) high end property on the Main Line

This home, currently under construction, is the most expensive home currently listed in Montgomery County, PA.

For Sale: 610 N Spring Mill Rd, Villanova, PA. $12,500,000.

Even in the most expensive areas of the Delaware Valley, we don’t see too many homes in this price range. This new home promises to set a new standard for high end properties in the area. Even if this isn’t exactly in your price range, it’s interesting to see what’s possible.

This home is located on Spring Mill Road in the “Estate District” of the Main Line. It is currently in its early stages of planning and construction. When complete, this home will have approximately 20,000 square feet of living space in 4 acres. It has 7 bedrooms, 9 full baths, and 2 half baths. Amenities include a squash court, tennis court, pool, formal gardens, a multi-car garage. The home also includes a ballroom and screening room.

This home is listed by Lavinia Smerconish of Prudential Fox & Roach.