Modest recovery expected in 2012 as region seeks new normal

(Interesting Article about the Market here in the D.C. Area)

The Washington Examiner Online
By Dean Bartoli Smith
January 26, 2012

The Washington real estate market, at times a bright star helping to lead the nation out of its housing woes, will continue its slow recovery in 2012, local experts said, after ending 2011 on a down note. The region saw soft sales in December and finished overall behind 2010, a year fueled by artificial factors such as stimulus monies and first-time homebuyer tax credits.

"The recovery has been tepid. We've been fibrillating in Fairfax County," said Sharon Bulova, chairman of the Fairfax County Board of Supervisors. "The recovery will be modest. We are seeing BRAC beginning to kick in and houses are not staying on the market too long."

A panel of economists, bankers and homebuilders, convened by the Center for Regional Analysis at George Mason University, also stressed "resiliency" and "stamina" while predicting modest growth for 2012.

Panelists referenced unforeseen factors in 2011, such as the tsunami in Japan, unrest in the Middle East, the debt ceiling debate, payroll tax cut, instability in world markets and the lowering of the nation's credit rating as contributing to consumer anxiety and stalled growth.

"We're in for slower, more moderate growth. We don't have the horses. We've lost a lot of jobs. Retail has gone flat; 2012 will not be as good as 2010," said economist Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University in Fairfax. "We won't slip back, it will be more of a struggle, but we're used to it. We need to find normal."

Housing will play a major role in the recovery, experts said, especially the residential construction sector, but it hasn't happened yet.

"The regional economy is poised for growth," Fuller said. "There is pent-up demand and we are waiting for the housing market to follow."

A recent uptick in multi-family rental unit construction, rising rents and low interest rates may make 2012 a good year for buyers, said Lisa Sturtevant, assistant research professor at George Mason University. "We've more than doubled multi-family rental unit construction with 23,000 units," she said. "Demand will be strongest for rentals in 2012. Higher rents and historically low interest rates will encourage people to buy."

She said she is concerned, though, about consumer confidence and its impact on growth this year. "Levels stayed stubbornly low in 2011," she said. "Consumer spending accounts for 70 percent of the GDP and it's critically important to the housing market recovery."

Sturtevant said foreclosures and short sales continue to put downward pressure on pricing in some areas. One-third of all 2011 area sales were for distressed properties and that equates to 20,000 homes out of the 60,000 sold. In Prince George's County, two-thirds of all sales in 2011 were for distressed properties.

The regional housing market experienced soft sales in December when compared to December 2010, based on Metropolitan Regional Information Systems data. Sales fell in the District by 4.7 percent and new listings were down by 27 percent. In Northern Virginia, sales and new listings were both down by 15 percent.

Montgomery County experienced a 6.4 percent dip in sales and new listings were down by 9.4 percent. Overall, area home prices essentially stayed flat in 2011 with the median sales price at $318,000, up from $317,000 in 2010.

"There's a feeling that it's not very good out there," said Donna Evers of Evers & Company Real Estate. "I don't see anybody sticking their neck out. It's a spotty market. There are a lot of buyers, but not much for sale."

New home construction is a missing piece of the puzzle even though it led the economy out of previous recessions.

"This region will outgrow its infrastructure capacity," Fuller said. "We should be producing twice as much housing as we are."

He said housing starts have been under-performing for long enough that there is room for a snap-back. Six million new workers will be in the region and needing housing by 2018.

"We are going to be looking at shortages in close-in areas like Arlington, Bethesda, Chevy Chase and Northwest D.C.," Evers said. "Homes under $1 million are hot. Access is an issue and we have a tremendous amount of young people who need to move into their first home."

Fairfax County just rezoned residential projects in Tysons Corner and Vienna, Bulova said. "There's an imbalance between residential and retail and we're trying to correct that," she noted.

Fuller predicted changes in 2013 that will include higher taxes and interest rates and he does not see the market in full recovery until the 2014 to 2015 time frame.

"I thought we would be further along, but we are in the same place as we were 12 months ago," he said. "Consumers are still anxious. We're running at half speed, struggling to add 20,000 new jobs a year. Detroit is generating more jobs than we are."