Rising Price of the American Dream
N.Va. Home Values Have Doubled Since 2000, and the Bill Is on the Way
By Michael Laris
Washington Post Staff Writer
Tuesday, February 1, 2005; Page B01
First of two articles
The most attractive thing about the run-down Arlington condominium David Larrea bought at the end of 1999, he says, was its price: $65,000.
Five years later, the broken windows have been replaced; he has painted his living room wine red; and values throughout the plain, five-story brick complex have soared 67 percent from a year ago. Larrea's home, according to the latest round of property assessments, is worth four times what he paid for it.
Thirty miles west of Larrea's end unit, in an upscale subdivision atop a hill in Loudoun County, Brian Rhoa is also seeing stunning gains in the value of the 3,000-square-foot home he bought for nearly half a million dollars. The value of the 64 houses in Rhoa's neighborhood jumped, on average, 49 percent in the last year.
Larrea, a musician who emigrated with his wife and two sons from Bolivia in 1993, and Rhoa, a nonprofit administrator who moved from the San Francisco Bay area eight years later, have leading roles -- and intimate stakes -- in the region's housing price boom.
The average assessed value of a home in Northern Virginia has roughly doubled since 2000, according to official figures from the region's five largest jurisdictions and estimates based on recent real estate trends, with values in some counties lagging slightly and others inching higher. Assessments have been released in Arlington and Loudoun, and notices will arrive in Fairfax, Prince William and Alexandria mailboxes in the coming weeks.
Economists credit cheap loans, a limited housing stock and burgeoning job growth -- spurred by federal government spending -- for fueling the upsurge. The resulting new tax dollars have fueled generous increases in spending by local governments, and sharp debates over philosophy and priorities.
Steep rises in condominium prices, attractive urban development near Metro stops and the convenience of living inside the Capital Beltway have pushed up prices in areas closer to Washington somewhat faster than elsewhere in Northern Virginia over the past five years. Assessments in Arlington County, for instance, have soared 125 percent since 2000.
In many cases, less-tony neighborhoods have experienced the sharpest increases. Homes in South Arlington, where prices started from a lower baseline, have shot up the fastest.
Although local officials base assessments on a variety of factors, including home sales in neighborhoods, proximity to commercial areas and transportation links, and any property improvements, common forces drive the market as a whole.
"Job growth is causing demand to be strong. Supply is low, and interest rates are low. The confluence of these three factors is what's keeping the real estate market strong," said Ed Long, Fairfax County's chief financial officer, who grew up in Alexandria and has eyed Northern Virginia's market undulations from his perch in Fairfax since the 1970s.
Sharp assessment increases have come to seem routine. But the implications of those combined increases are far-reaching, shaping everything from government spending and tax bills to the affordability of housing and the way families pursue their dreams.
The steep rises have created an urgency -- some say frenzy -- among potential buyers.
"It's the sort of panic thing . . . like musical chairs," said Charles M. Page, Arlington's deputy assessment chief. "You don't want to be left without a chair."
That, some financial experts warn, is leading to risky decisions that could become costly disappointments when trends change.
The proliferation of interest-only loans -- in which buyers purchase more home than they could otherwise afford by betting that prices will keep zooming upward, then make interest-only payments until they build equity -- is frequently cited as an example, as is the rush of bidders driving up the price of properties they have not even inspected. Analysts have warned that some properties could be overvalued.
"Trends in the past will repeat themselves," said Long, who presided over a nine-year stretch in the 1990s when home prices were flat or declining. "At some point in time, this is an economic cycle that will turn around."
Some, such as Brian Rhoa, say they have witnessed such a shift before. He said the griping he has heard lately reminds him of the heady California tech boom.
"It goes usually something like this: 'I can't afford to sell my house because I can't afford to move anywhere else in the area,' " Rhoa said. "We're probably maxed out here. . . . How many people can qualify for an $800,000 home?"
In Rhoa's slice of the large Broadlands subdivision, prices have climbed faster than in any other single-family home development in Loudoun. It is near the Dulles Greenway, a key commuter toll road, and he believes its slight elevation puts it a bit above the hubbub of the nation's fastest-growing county -- all of which helps explain its attraction.
"It's a different feel than the cookie-cutter neighborhood," he said.
The rising values come with a tax wallop that varies among Rhoa's neighbors. Cathy Laakso covers her house payments, and rising tax bills, by painting home murals for Loudoun's steady stream of new residents.
"There's a lot of young families here that will spend money to have their child's room like a princess. That's what I do," Laakso said. The prospect of paying thousands more in taxes has caught her attention. "It means I have to paint a lot of walls."
The rise in assessments has also underwritten a massive increase in government spending. The Fairfax County government is taking in nearly half a billion dollars more in residential real estate taxes than it was four years ago. During that time, school funding has jumped by $337 million, or about two-thirds of that amount.
Many local governments have nodded to political pressure and made slight cuts in the rate at which they tax real estate. But no local jurisdiction has come close to cutting the rate enough to offset the overall assessment increases seen by most homeowners.
"Nobody's tax rate got cut in half, so it had to have gone up," said Ben Mays, Loudoun's deputy chief financial officer.
Rising costs associated with being the nation's fastest-growing county consumed many of those additional funds in Loudoun, but Mays said government costs have been increasing across the region.
"Everybody's health insurance costs went up. Everybody's costs to the state retirement system went up. There was pay escalation. You're going to see that, especially on the education side," Mays said.
Robust county tax collections have been accompanied by shortfalls in state funding, local officials say. Unlike Maryland, where assessments have also risen steeply, Virginia does not allow local governments to impose their own income taxes or to cap assessment increases. Counties have become increasingly dependent on real estate levies, especially taxes on residential properties.
The building that David Larrea's real estate agent led him to five years ago is home to some of the clearest entry-level winners in Arlington's housing sweepstakes. It's also home to many who have missed out.
Larrea worked at the Bolivian statistical bureau and was a drummer for a band called Chispa Tropical (Tropical Spark) before moving his family to the United States and renting an apartment near Falls Church.
Now he shampoos carpets and buffs floors and hopes to build a business with a few employees. His wife, Jeanneth, who was trained as an accountant, works as a housekeeper in the District.
Their oldest, David, is studying management and finance at George Mason and regularly monitors the Arlington assessor's Web site to see the latest uptick in the home's value.
"Not even the best mutual funds will see these returns over a five-year period," said the younger Larrea, 23, who has also begun working with a home mortgage firm and plans to provide volunteer Spanish language counseling on financial basics after graduation this spring.
"When we used to live back in Bolivia, our dreams, our hopes to even own a car were not really going to happen. Then my dad had the idea of going to the States," said Luis Larrea, 20, the other son, who is studying filmmaking. "Owning a house like the one we own now is something we didn't even think about back then."
His father said he is not tempted to sell the best investment he has ever made, at least not now. But he hopes to eventually have the space for a recording studio and a place for the variety of plants he used to keep at his home in La Paz.
An tiny, ailing house plant he found along the street just before moving into his new home is now butting against the ceiling of his refurbished living room.
On the floor above is a neighbor who missed the ownership window.
Sinuon Tang has been renting his one-bedroom unit for 15 years and is now paying $1,100 a month, a rent very likely to rise, if only to cover his landlord's higher taxes.
Tang, 69, a taxi driver who has been robbed twice, fled Cambodia after living under the communist Khmer Rouge. He walks with a limp, the legacy of an accident he had while being forced to drag a heavy cart in Cambodia.
The Larreas' path is unattainable for him, he said. "I only just make a living. I can't afford to buy," he said.
Tomorrow: How rising assessments are affecting the residents of one neighborhood.
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