After digging really deep in the Wash Post website, I did find the following story about real estate prospects for the coming year.
____
2002
Housing Experts Look Ahead to a Year of Price Appreciation, Rising Mortgage Rates, Near-Record Sales and a Local Market Heavily Affected by War-Related Job Growth
By Sandra Fleishman
Washington Post Staff Writer
Saturday, December 29, 2001; Page H01
Yes, there's a recession, and yes, there's a war on, and yes, there's been a major jolt to the economy and to consumer confidence because of the Sept. 11 terrorist attacks, the anthrax incidents and their aftermath.
Still, the housing industry in 2001 has set records in home sales and housing starts, according to most experts. And home prices are still going up, though not quite at the double-digit rate enjoyed in some areas in the previous two boom years.
Chalk it all up to the lowest mortgage rates in 30 years and to still-low inventories of houses for sale. Those two factors made for unexpectedly sunny housing news in 2001, much brighter than was predicted a year ago, before the economy started to slide and long before Osama bin Laden became a household name.
We will not be seeing bargain-basement interest rates again for a while, according to most housing experts. But with predictions that rates will stay relatively low and that this could be a mild recession, the forecast for 2002 is hearty, analysts say.
While trend-watchers predict slippage in home sales, starts and prices for early 2002, they expect a rebound in the second half of the year both for the softened housing market and for the whole economy.
As a result, the housing statistics next year could be just shy of this year's records, analysts say.
Everything depends, of course, on the progress of the war on terrorism. More attacks on American soil would shatter confidence, economists warn.
But the Washington region can benefit when the nation is at war, the experts note. Because of defense and security needs, the Washington area will see greater job growth than projected before Sept. 11, according to Stephen S. Fuller, a regional economics analyst at George Mason University. Fuller estimates 80,000 new jobs will be created in 2002, but enough new housing will be built for only about half of those workers.
Of course, the outlook is far from rosy for many who lost jobs because of the sinking economy and the terrorist attacks. Service and tourism industry workers can't easily shift into the new high-tech defense and security slots. Those laid-off workers may face evictions or foreclosures unless they get financial relief from landlords and lenders, or from the government.
Meanwhile, demand for more affordable housing is growing across the region, according to the experts. The alternative is even more people moving out -- to the outer counties, West Virginia and Pennsylvania -- and even more commuting headaches.
We turned to the prognosticators for a look ahead.
Home Prices
In 2001, U.S. home prices rose almost 8 percent, according to estimates. That's down from the 9.4 percent jump in 2000, but still more than the 5 percent to 5.5 percent our forecasters predicted last December. In the Washington area, though, gains were stronger -- 11 percent, according to the Greater Capital Area Association of Realtors.
"We've had about 9 percent price appreciation in 2001 in Northern Virginia, more than double the inflation rate. We think it will dip a little bit in 2002, but we see a continued good pace to the market.
"We've heard rumors that the high-end market -- the million-[dollar]-plus homes -- is in a slowdown, but talk to other agents and they say they haven't seen it."
-- Jack O'Donohue,
chairman,
Northern Virginia Association of Realtors,
and associate broker,
Trust Properties Inc., Fairfax
"On average [appreciation nationally] next year will be more in the 5 [percent] to 7 percent range, as opposed to the 8 [percent] or 9 percent we're expecting to see for 2001. It will be comfortably above the rate of inflation here.
"Real estate in general has been a better investment than the stock market, and it's going to continue to be that way for a while, if maybe not for the whole year.
"Because of the uncertain economy, buyers are going to be looking for the bargains and trying to buy smarter than they did."
-- Stephen S. Fuller,
regional economist and professor of public policy, George Mason University
"Housing prices for 2000 [nationally] went up by 9.4 percent. This year we're projecting 6 percent. For 2002, we think it'll be about 2.5 percent. . . .
"With mortgage rates edging up and house prices continuing to go up, that's hurting affordability. But it's still remarkable that prices are still going up despite the recession."
-- Sung Won Sohn,
chief economist, Wells Fargo & Co.
"We're not going to see a loss in value, but home prices will probably moderate. We see a 2 percent or 3 percent increase next year."
-- Debbie Rosenstein,
Rosenstein Research Associates, McLean
"Home price gains should continue to be positive in 2002 with the rebound in the economy, although the pace should slow from the heady pace of recent years."
-- David W. Berson,
vice president and chief economist, Fannie Mae
"Most places will still have increases more or less equal to or a little above inflation. In real terms, subtracting inflation, that's about zero [in terms of a gain].
"Locally homeowners should do better than average. It looks like the District may be softer than some of the suburbs. The high end of the market is more vulnerable because buyers at that level may have been affected more by stock market losses."
"One of the things protecting home building and prices is that builders haven't done a lot of spec building or overbuilding [as occurred in previous recessions]."
-- Michael Carliner,
vice president for economics,
National Association of Home Builders
"I don't see the high end market being in trouble. We have a $4 million house already under contract for next year.
"We're still seeing open houses that are really flooded, and multiple contracts. . . . We just sold a house . . . as is, all cash, in 48 hours, with three contracts all over the asking price. We would have had more contracts, but we didn't need to. And they're closing in 10 days.
"It's a very, very hot market if it's priced right, the condition is good and if it's in the right location."
-- Cathie Gill,
president,
D.C. real estate brokerage Cathie Gill Inc.
"Prices nudged up this year. The average price for a single family home in Prince George's County was $155,466 in November of 2001 compared with $153,593 last year. We see that trend continuing."
-- Boyd J. Campbell,
president,
Prince George's County Association of Realtors,
and agent with Century 21 Home Center, Lanham
"Prices are going to continue to rise whenever there's a lack of inventory and a great amount of demand. . . . We showed a one-room at $147,000 recently in Adams Morgan and got eight offers. A big house in Mount Pleasant that needs total redoing had a list price of $795,000 and got multiple offers.
"It's very much wishful thinking, the notion that prices will go down."
-- Dale Mattison,
president-elect,
Greater Capital Area Association of Realtors,
and agent with Long & Foster Real Estate Inc.,
Chevy Chase
"The returns on real estate in 2001 far outperformed stocks and bonds, so it became a good, viable alternative to those investments."
-- David Lereah,
chief economist, National Association of Realtors
"Because of the recession, next year we see a decline in housing demand and a slowing in house price appreciation nationally. Over the next year we're projecting only 2 [percent] to 3 percent appreciation. . . .
"Washington will do much better than the rest of the country, though, because the market here is fairly insulated from the recession because of the federal government. . . . There's much less manufacturing here, and it's been manufacturing that's taken the biggest hit. And the high-tech industry is much different than what's in Silicon Valley. Here it's much more consulting based."
-- Frank Nothaft,
chief economist, Freddie Mac
Mortgage Rates
What a year! If you were lucky, you caught the lowest 30-year mortgage rates in 30 years. That rate, 6.45 percent, was available for a brief time at the beginning of November, after the Federal Reserve had cut short-term interest rates 10 times and the Treasury Department unexpectedly announced it would not longer sell 30-year bonds. As a result, 15-year rates also fell to a 10-year low. But even if you missed that opportunity -- darn it -- the rates for most of 2001 stayed at very inviting levels, leading to the biggest refinancing boom in history.
Could it happen again?
"The next major move in interest rates is going to be up, not down, based on the assumption that the economic rebound will be fairly healthy . . . and that this recession will be the third mildest one during the postwar period. We think sometime around midyear the jobless rate will begin to fall, allowing the Federal Reserve to start raising interest rates.
"We think mortgage rates will probably approach 8 percent by the end of 2002."
-- Sung Won Sohn,
chief economist, Wells Fargo & Co.
"Interest rates should rise in 2002, especially in the second half of the year, as the Fed begins to tighten monetary policy.
"But short-term rates will rise more than long-term rates [such as 30-year mortgage loans] because long-term rates have already rebounded in the last six weeks. We expect rates in the low sevens for most of the year."
-- David W. Berson,
vice president and chief economist,
Fannie Mae
"Our generation's been fortunate in that we hit a 30-year low [in long-term mortgage rates], but it appears that it may not occur again.
"We see 30-year rates going up to 7.2 percent next year. And the forecast for 2003 is 7.5 percent.
"What I worry about now is that the Fed has been lowering rates so much that that makes me a little nervous. . . . Inflation is higher than the Fed's current rate [for short-term lending], so the real interest rate is negative. As the economy recovers, the Fed will most likely raise interest rates . . . and that will exert some upward pressure on mortgage rates."
-- David Lereah,
chief economist, National Association of Realtors
"It's just a phenomenal time to be a consumer shopping for a mortgage. . . . The single-family total for loan originations just shattered all records -- at $1.8 trillion. In the last refi boom in '98, the total was only $1.5 trillion.
"We don't see inflationary pressures accelerating over the course of next year, and that's what you'd need for rates to jump. We see 30-year rates averaging around 7 percent for the whole year, a very attractive rate. It's so easy for people to forget the double-digit rates of the '80s.
"We see 15-year loans about a half point below that -- at about 6.5 percent. One-year ARMs are much lower, because they've been most impacted by the Fed's rate cuts."
-- Frank Nothaft,
chief economist, Freddie Mac
Home Starts and Sales
Our analysts a year ago predicted home starts and sales would slip a bit in 2000. But, once the dust settles, it looks as if home starts and sales will hit new records in 2001 because of low mortgage rates. Home starts are expected to total 1.6 million, up about 2 percent from 2000. About 889,000 new homes and about 5.19 existing homes will be sold. That compares with 881,000 new homes and 5.12 existing homes sold in 2000.
Will the numbers keep rising?
"Despite the fact that we had a little bit of a scare in the last few months, 2001 will be a record year for new home sales, at 889,000 new home sales. . . . And we expect 2002 to be nearly as high, at 884,000.
"Existing home sales will also be strong next year, though we expect the first part of the year to be weak because of the overall economy. For the whole year the numbers will be about equal to 2001. In 2003, though, we see a significant increase for both -- to about 5.3 million in existing home sales and 920,000 in new homes sales."
-- Michael Carliner,
vice president for economics,
National Association of Home Builders
"Nationally we're going to see continued strength in the market. But it will certainly be stronger in our region. It's unfortunate that the pain of others is the gain of some, but this area will benefit from the additional federal spending related to the war.
"There are huge numbers of people just coming into house-buying age; they're fueling the start-up market. Plus young professionals want to live in center-city neighborhoods."
-- Dale Mattison,
president-elect,
Greater Capital Area Association
of Realtors, and agent with Long & Foster
Real Estate Inc., Chevy Chase
"As has happened so often in the past, the Washington economy seems to be protected from national recessions because of the area's connection to the federal government. That protects us from very wide swings in the economy.
"We estimate that total sales for the metro area should match 2000, with about 26,000 homes sold. Though sales dipped after Sept. 11, they shot up in October and November and are stronger than even in 1999."
-- Jack O'Donohue,
chairman of the board,
Northern Virginia Association of Realtors
and associate broker,
Trust Properties Inc. in Fairfax
"Because of the war on terrorism, there will be increased federal hiring and contracting that we wouldn't have had if 9-11 had not taken place. So we're going to gain more jobs than we would have otherwise.
"This one-year event will tide us over the soft spot [in the economy] that would have occurred [as a result of the national economic slide]. It's fortuitous for us.
"But we will really be supply constrained next year. We expect another 80,000 net new jobs in 2002, but the projections show maybe 20,000 or 22,000 new units of housing. We really need twice that many.
"Because of the lack of inventory and the higher prices close in, people will be moving farther out. That will make the market strong in the counties adjacent to the Washington metropolitan area."
-- Stephen S. Fuller,
regional economist and professor
of public policy, George Mason University
"Sales may decline a little in 2002 but they'll still be near record.
"Because sales have remained strong and the inventory of unsold homes is extremely low, starts for next year should only decline a little bit from this year's strong level."
-- David W. Berson,
vice president and chief economist,
Fannie Mae
"During recessions home sales typically fall, and there will be no exception this time. But the decline will be fairly modest because interest rates are so low.
"We see housing starts at 1.53 million in 2002 compared with 1.58 million in 2001.
"The composition of home sales and housing starts will change. In the past builders concentrated on offering more expensive homes. Now they're trying to build more affordable homes because the higher-priced houses are not selling as well."
-- Sung Won Sohn,
chief economist, Wells Fargo & Co.
"Things are looking really good for Prince George's real estate because of the lack of inventory. The hot spots have been Bowie and Mitchellville, and there's been a resurgence of interest in urban areas such as College Park and Hyattsville.
"As inventories run low in Northern Virginia, a lot of people have decided to cross the Woodrow Wilson Bridge, and look in the southern part of Prince George's County. . . . As they run out of land to build on in the surrounding areas, P.G. will be a target destination. . . . Our number one priority [to draw newcomers] is improving the educational system."
-- Boyd J. Campbell,
president,
Prince George's County Association
of Realtors, and agent with
Century 21 Home Center in Lanham
"The market has slowed locally this year because of a lack of supply of new homes and because buyers are more cautious, more nervous about the economy. . . . We probably won't see the new hires [from the increased defense and security contracts] until the second half of the year.
"As a result, we see new home sales being around the same place as this year. We estimate about 18,700 new homes in 2001 and 19,200 or 19,500 in 2002.
"Builders are not holding back; the demand is there but buyers are taking longer to make up their minds. . . . They don't want to buy at the top of the market.
"For the last several years [demand was so strong that] builders have been just taking orders and buyers have been taking whatever the builders offered. That's not going to be the case in 2002."
-- Debbie Rosenstein,
Rosenstein Research Associates, McLean
"This market is extremely hot. It did slow down a little bit on the high end for a while. . . . People were being a little bit more realistic about what they could afford [if one person in a family were to lose their job], but buyer confidence is still up and interest rates are low. People still feel the need to buy.
"Unfortunately we have to keep moving farther and farther out to find land. We're in Stafford and Fauquier counties, we're looking in West Virginia and we're going back into the Baltimore area and looking around Frederick."
-- Dee Minich,
senior vice president of sales
and marketing for Washington Homes,
a K. Hovnanian Co.
"The trend for housing for 2002 and beyond remains very favorable because we still have relatively low interest rates and low inflation. . . . Combined with favorable demographics -- a baby boomer generation in peak earning years buying houses -- the fundamentals are solid.
"The good news is that builders did not overbuild. . . . Builders are always cautious now; they don't want to get caught with their financial pants down."
-- David Lereah,
chief economist,
National Association of Realtors
"We expect total home sales to be just through the roof in 2002. We're forecasting 6.24 million sales -- 5.3 million in existing homes plus 900,000 new homes.
"One important difference from the last big recession [in 1990] is the overbuilding phenomenon. New home inventories in 1990 were more than double the size of the inventories we have now. So the market remains fairly tight."
-- Frank Nothaft,
chief economist, Freddie Mac
Inside the House
With the economy officially in recession, will Americans back off the bigger-is-better mentality that ruled during the boom?
"People are still getting a lot of upgrades, in kitchens with upgraded cabinets, in floors . . . with hardwood and ceramics. And they want a lot of bathrooms.
"Three-car garages are still huge."
-- Dee Minich,
senior vice president of sales
and marketing for Washington Homes,
a K. Hovnanian Co.
"You're going to see some innovative new products in single-family homes being built on small lots. The lots may be smaller but the houses aren't. . . . There will be alternative placements for stairs, alternative placements for front-entry doors. . . . For instance, you may sometimes find the entry door on the corner of the house because of the lot."
-- Debbie Rosenstein,
Rosenstein Research Associates,
McLean
"The focus now is on quality of space, rather than quantity. New designs are more cozy, more family-oriented, we've moved away from the glitz and glamour stuff, that we saw especially in the '80s.
"You might see more 10- to 12-foot ceilings instead of two-story spaces, the cathedral ceilings. Living rooms have been getting smaller and will continue that way, they're more like a parlor. That space is going back into the family areas. We're also seeing more space going into dining rooms, a lot of people are actually using their dining rooms now and they're concerned about getting family groups together. Master baths are more manageable in size, compared with the huge ones in the '80s. A lot of buyers are going for two-person showers, sometimes in lieu of the tub."
-- Margaret Rast,
Rast Architectural Studio Inc., McLean
"There are some conflicting forces at play these days. We're trying to fit more house on the same size lot but we have an increasingly older home-buying public and they'd prefer not to have a lot of stairs. . . . You may see more bedrooms on the first floor."
-- Michael Carliner,
vice president for economics,
National Association of Home Builders
Remodeling Market
The remodeling industry has been growing steadily, to an estimated $180 billion in revenue in 1999. The total for owner and rental improvements is expected to reach about $200 billion in 2001, but the pace of spending is slowing a bit, analysts say, as people hunker down.
The refinancing boom helped keep the remodeling market strong, though, as did the lack of inventory. Families guarding budgets in many cases found that fixing 'er up was cheaper than moving. Is that the new name of the game?
"We expect the remodeling market, like the economy, to stay weak through the first half of the year, but my guess is that the second half will be stronger. We see the market size holding steady in 2002.
"One issue working against that trend, though, is that there are very favorable financing opportunities. A lot of households have a ton of equity built up in their house . . . and some may be taking it out to pay for remodeling. A fairly significant chunk of refinancing money goes back into the home.
"Everybody I talk to says the market is very hot [in Washington], so I would guess that all things being equal the D.C. metro area will have similar trends but a bit more on the positive side.
"Probably the upper end of the [remodeling] market will be hit more than the lower end. The upper end tends to get hurt a bit more whenever the market weakens. . . . People will still be doing roof repairs and other work related to structural needs, but [homeowners] might not be doing the things you'd like to do but don't need to do."
-- Kermit Baker,
director, Remodeling Futures Program,
Harvard University's Joint Center for
Housing Studies
"There was a time shortly after 9-11 when people . . . sort of backed out of projects because the economy wasn't looking so good. But in the last few weeks, they've been calling back and saying they want to go ahead. So it looks like business will stay strong.
"We have noticed a reduction in job size to some degree. We have dropped maybe $5,000 on average on what would normally be jobs between $60,000 and $100,000.
"Everyone's still a little unsure about what's going to happen, but the expectation is everything is going to be okay.
"The good news is that most [remodelers] now have a two- to three-month backlog versus the six-month backlog they had at the beginning of the year."
-- Bob Gallagher,
president, Washington area chapter
of the National Association
of the Remodeling Industry, and partner
in Sun Design Remodeling in Burke
"It used to be that you'd have to stay in a house five to seven years to make back the money from an addition, but now in a lot of houses -- in McLean and North Arlington, for instance -- if an owner had some reason to sell right after an addition, they'd be making a profit."
-- Margaret Rast,
Rast Architectural Studio Inc., McLean
Rental Market
Rents have climbed in the Washington area in the past three years, with increases of 10 percent to 20 percent not unusual. But the recession and Sept. 11 have hurt, analysts said. And the ads prove it, as even the most upscale apartments offer one or two months rent-free.
"It's probably going to be a renter's market in 2002, or at least more than it has been in the last three years [because of] an increase in supply. There's more new supply coming on line next year than there has been in the past couple of years.
"In the past two years, about 5,000 new apartments were delivered each year. Next year, there will be more like 9,000. That will give renters a greater number of options and also serve to keep pricing steady.
"The increases in rents were very significant in 1999 and 2000. They went up about 15 percent altogether -- 5 percent in 1999 and 10 percent on average in 2000. [Rents in] 2001 by contrast have been pretty flat and we expect 2002 to be pretty flat.
"We see the least increase in supply in Maryland, so we expect Maryland to be the tightest [in vacancies] of the three jurisdictions."
-- Matt Birenbaum,
regional vice president,
AvalonBay Communities Inc.
"Most of the decline in rents is behind us, though we may see another 4 [percent] to 8 percent decline in some of the weaker submarkets. Then we expect about 18 months with no rent gain or loss. By the end of 2003, rents will edge up again rather gradually. . . .
"[Because so many new units are opening] we expect a vacancy rate of 6.5 percent for newer apartments by the end of 2004."
-- Greg Leisch,
chief executive,
research firm Delta Associates, Alexandria
© 2001 The Washington Post Company |
