2010 Trends In Housing of Northern Virginia

TRENDS IN HOUSING

YEAR-END 2009

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YEAR-END 2009TRENDS IN HOUSING

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Figure 2

Source: Delta Associates; January 2010.

MARKET CONDITIONSWASHINGTON METRO AREA

AT YEAR-END 2009

THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET

SECT ION ONE

Figure 1

Source: MRIS, Delta Associates; January 2010.

MARKET INDICATORSWASHINGTON METRO AREA

AT YEAR-END 2009

Figure 3


HOME PRICES BY SUB-AREA*WASHINGTON METRO AREA

YEAR-END 2009

*Core: DC, Arlington, Alexandria.Inner: Fairfax, Montgomery, Prince George’s; Fairfax City and Falls Church.Outer: Loudoun, Prince William, Frederick.

The Washington housing market in the 4th quar-ter of 2009 continued to show signs of recovery, as prices rose modestly from the previous year and homes sold more quickly. Volume continued to pick up due to near-record low interest rates, Federal incen-tives, reduced prices and an improving economy.

Although unit sales volume is down 12.3% from the previous quarter, it is up 18.9% from one year ago. Sales volume in the 4th quarter has contracted com-pared to the 3rd quarter’s sales volume, likely due to the expected expiration of the Federal tax credit for first-time homebuyers as well as seasonality. The Washington region continues to add high-paying jobs, which is fostering housing demand, even as it loses lower-paying jobs. As the national economy gains traction, Washington will see burgeoning strength in the region’s housing market. As of year-end 2009, all four major market indicators have improved com-pared to one year earlier.(See Figures 1 and 2)

The average price of a Washington-area home is $376,188 in the 4th quarter of 2009. The metro-wide price of homes sold in the 4th quarter of 2009 was down 2.7% from the 3rd quarter of 2009, but it was 2.2% higher than in the 4th quarter of 2008. This is the first time metro-wide prices have risen on a trailing 12-month basis since the 4th quarter of 2007.

Prices remain highest in the Core jurisdictions of the District, Arlington and Alexandria. The average sales price of a Core home in the 4th quarter of 2009 is $486,328, up 2.2% from the 3rd quarter and 2.2% lower than one year ago. In the District, the average price in December 2009 was up 14.6% from one year earlier. In Alexandria, the average sales price in De-cember 2009 was up 3.0% compared with December 2008; Arlington posted price increases of 14.5% for the same 12-month period. (See Figure 3)

The area’s Inner ring of Fairfax, Montgomery and Prince George’s counties (and Falls Church and Fair-fax cities) experienced price declines of 5.4% from the 3rd quarter; the average price in the 4th quarter of 2009 was $374,044, which is down 5.1% from one year ago. Fairfax County home prices rose 12.0% from December 2008 to December 2009. In Montgomery County, prices climbed 4.6% over the same period; Prince George’s home prices fell 18.1%.

The Outer suburbs of Loudoun, Prince William and

* Sales pace as of December 2009. Pace is ratio of total for-sale inventory to current month’s sales.

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Frederick counties – where foreclosures led to the re-gion’s steepest price declines in 2006 through 2008 – showed a slight drop over the quarter, but had the strongest yearly price gain of the sub-areas. The aver-age sales price of an Outer home in the 4th quarter is $297,544, down 0.5% from the 3rd quarter and up 11.9% from one year ago. In Prince William County, the average sales price in December 2009 increased 22.4% from one year earlier. In Loudoun, home prices rose 10.8% from December 2008 to December 2009; Frederick posted declines of 9.2% year-over-year.(See Figure 4)

In 2009 the number of homes sold metro-wide is up 11.4% from 2008, indicating a return of buyers to the market. (See Figure 5)

Home prices at the metro level in the 4th quarter of 2009 were higher than one year earlier, with Outer ju-risdictions showing the most improvement as the only sub-area with a price increase. The Core and the Inner suburbs continue to experience a drop in prices after a bounce in the 2nd quarter; prices in the Outer suburbs approximate those seen in the 3rd quarter of 2008. Given this mixed performance, it is too early to tell whether this market has passed the bottom, but rising unit volume and declining days on market bode well for recovery. We think that in the Washington metro, the bottom has likely passed. (See Figure 6) As buyer activity has increased, properties are selling more quickly. For the Washington region, homes sold in an average of 72 days, down from 81 days in the 3rd quarter and 104 days one year ago.

In the Core, time on market fell to 73 days, down from 79 days in the 3rd quarter and 75 days one year ago. Properties in the Core are selling at a rate slight-ly below the region’s long-term average of 76 days. Time on market in the Outer suburbs now averages 59 days, down 11 days from the previous quarter and down 51 days from one year ago. Homes are taking the longest to sell in the Inner suburbs – 76 days – down from 86 days in the previous quarter and 109 days one year ago.

Figure 4

HOME SALES AVERAGE PRICE CHANGEWASHINGTON METRO BY SUB-AREA*

2003 - 2009

Figure 5

AVERAGE SALES PRICE FOR EXISTING HOUSESWASHINGTON METRO BY SUB-AREA*

2002 - 2009






Figure 6


*Core: DC, Arlington, AlexandriaInner: Fairfax, Montgomery, Prince George’s; Fairfax City and Falls Church.Outer: Loudoun, Prince William, Frederick.

AVERAGE DAYS ON MARKET - EXISTING HOUSESWASHINGTON METRO AREA BY SUB-AREA*

2002 - 2009

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According to Freddie Mac, the average 30-year fixed-rate mortgage at the end of December 2009 was 5.14%, exactly the same as one year earlier. Rates bot-tomed at 4.71% in the first week of December before rising again, though they still remain low by historical standards. The rate for a 15-year fixed-rate mortgage was 4.45%.

A combination of low rates and the Federal $8,000 tax credit for first-time home buyers has helped lure many buyers from the sidelines. Although some buy-ers are facing higher lending thresholds – larger down payments, better cash reserves – buyer activity picked up in 2009 compared to 2008.

Recent market statistics indicate that buyer and seller expectations are moving toward each other, helping to bring the market into balance. The average time on market in the Washington area is 72 days. This duration is slightly below the long-term average of 76 days, and it is the lowest time on market since the 3rd quarter of 2006. However, sellers remain discon-nected from market conditions on pricing. The aver-age selling price in the 4th quarter of 2009 is 93.7% of list price, up 50 basis points from the 3rd quarter but indicating that sellers are still making generous concessions to facilitate sales.

In November, the national pending-home sales in-dex, a forward-looking indicator of contracts signed (but not settled) for previously owned homes, fell 16.0% from the October reading after a surge of activity in the preceding months as homebuyers at-tempted to beat the original deadline for the federal

first-time homebuyer tax credit. The November 2009 index, which is published by the National Association of REALTORS®, was 15.5% higher than the November 2008 reading. Pending home sales signal optimism in the market; however, some contracts are taking lon-ger than normal to settle as appraisers and lenders are grappling with a recalibrating market. The Na-tional Association of REALTORS® affordability index rose 23.4 points from November 2008 to November 2009. The affordability index incorporates median home prices, median incomes and average mortgage rates to broadly gauge the national homebuying cli-mate. Lower prices continue to propel sales volume, and the region persists in working through its inventory overhang. The Washington area has an average of 5.3 months of for-sale inventory at December 2009, down from 7.3 months’ worth one year ago. In recent years, Washington area average prices tend to rise when the ratio of inventory to sales is below 6 months’ worth. Lender constraints may hinder a quick rise in prices, but the gap between supply and demand is closing in the Washington area. (See Figure 7)

In most jurisdictions the ratio of inventory to sales fell in the 4th quarter of 2009 compared to one year ago. Fauquier County has the highest ratio in the region at 9.0 months’ worth of inventory at December 2009. Jurisdictions with ratios higher than last year at this time include Prince William County, Alexandria and Fairfax City. Falls Church has just 3.1 months’ worth of inventory at December 2009, the lowest in the re-gion. (See Figure 8)

Figure 8

*Pace is ratio of total for-sale inventory to current month’s sales.


MONTHS OF FOR-SALE INVENTORYWASHINGTON METRO AREA

DECEMBER 2008 vs. DECEMBER 2009

PRICE CHANGE AND INVENTORYWASHINGTON METRO

2003 - 2009Figure 7

*Months of inventory at current sales pace for last month in each quarter.


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NAVIGATING THE MARKET

The Washington area housing market appears to be in recovery. Home prices in the metro are slightly high-er than they were one year ago, and the 4th quarter shows increased volume from last year. The Federal $8,000 tax credit for first-time homebuyers has been successful at luring reluctant buyers off the sidelines. This tax credit, coupled with near-record-low interest rates, has continued to spur buyer activity.

Steady buyer activity – especially in the lower price brackets – has helped the region work through its ex-cess inventory. As a result, the ratio of inventory to sales is now 5.3 months and is approaching a healthy balance between buyers and sellers. Well-priced prop-erties in desirable neighborhoods are seeing multiple offers, another indication of the slowly shifting mar-ket. As demand and supply come into balance, we should see continued price traction in coming quarters. (See Figure 9)

A healthy apartment market is helping to facilitate housing demand, particularly among first-time buyers. The region’s stabilized vacancy rate for investment-grade apartments (Class A and B) is 4.3% in the 4th quarter of 2009, down from 4.9% in the 3rd quarter and at the same level as one year ago. With a nation-al vacancy rate of 7.6%, Washington boasts one of the lowest apartment vacancy rates in the nation.

Figure 9


TOTAL ACTIVE LISTINGSWASHINGTON METRO AREA, ALL HOUSING TYPES

2003 THROUGH 2009


Figure 10

Source: Census Bureau, Delta Associates; January 2010.

CONSTRUCTION STARTS AND BUILDING PERMITS*UNITED STATES

2000 THROUGH NOVEMBER 2009

*For privately owned housing units, seasonally adjusted and annualized.

Seller expectations remain loftier than the market, but the gap between buyer and seller demands is closing. The average sales price in the 4th quarter of 2009 is 93.7% of list price, the highest share in more than two years. Sellers continue to make concessions to buyers to facilitate sales, but those concessions are shrinking.

Building activity in the region remains tight, as the market is not yet expanding and lending activity is still constrained by the national Credit Crunch. According to the Census, the annualized number of permits for new housing nationally in November 2009 (the most recent data available) was 584,000, up 6.0% from the October number and up from the record low of 498,000 set in April 2009. The number of permits issued in November 2009 was down 7.3% from the number issued in November 2008. (See Figures 10 and 11)

The number of housing starts fell 12.4% from Novem-ber 2008 to November 2009, as oversupply remains a concern in many metropolitan areas. In the near term, new-home buyers will help to work through the excess inventory of existing newly built homes.

Concerns about the economy and job security con-tinue to affect builder confidence. The National Asso-ciation of Home Builders/Wells Fargo Housing Mar-ket Index of builder confidence was 16 in December 2009, down one point from November and its lowest point since June of 2009. An index below 50 indicates that more builders view sales conditions as poor than

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good. The index is based on three components. Two of them – measuring current sales conditions and the sales expectations for the next six months – fell from Novem-ber; the measure gauging traffic of prospective buyers remained unchanged for the third month in a row.

Home refinancings continued to surge in the 3rd quarter with record low interest rates, although tough credit standards are still stifling volume. According to Freddie Mac’s Quarterly Refinance Review, homeowners cashed out $20 billion in home equity in the 3rd quarter of 2009. The aggregate amount of $60 billion that was cashed out during the first three quarters of the year is the smallest volume of equity extraction over the first three quarters of a year since 2000. The likely cause of the decline is that homeowners have a smaller equity cushion. Half of those refinancing in the 3rd quarter of 2009 lowered their annual mortgage interest rate by an average of 110 basis points below the previous rate. Freddie Mac reports that among those who refinanced, 64% of prime borrowers who refinanced a conventional, second-lien mortgage either kept the same principal balance or reduced it. This figure is the highest such share in six years. Conversely, the share of refinancing resulting in higher loan amounts fell to a new six-year low of 36% in the 3rd quarter from 38% last quarter.

The Mortgage Bankers Association reported a small increase of 1% in seasonally adjusted refinancing ap-plications from October to November. We expect refinancings to slow dramatically in 2010-11 as

long-term interest rates rise in the aftermath of heavy deficit spending by the Federal govern-ment.

CONSUMER SPENDING GETS ABOOST AS INCOMES RISE

U.S. personal incomes rose in November for the fifth month in a row, providing some confidence as con-sumers began the holiday season. Consumer spend-ing increased in November following a rise in overall personal income, according to the Commerce De-partment. Spending rose 0.5% from October, after increasing 0.6% the previous month and falling 0.6% from August to September. The Commerce report also showed that personal income increased 0.4% from Oc-tober after increasing 0.3% for three months in a row. As the recession moderates consumers are spending more; however, gains continue to be measured. Retail sales continue to be a barometer of consumer senti-ment; slow improvement will not help bring about a robust recovery.

We expect this same pattern to hold true for hous-ing – a slow but steady increase in home sales as the recession gives way to recovery.

WASHINGTON OUTPERFORMS THE NATION

By most measures, the Washington metro area hous-ing market is performing better than most other metro areas.

Source: Census Bureau, Delta Associates; January 2010.

CONSTRUCTION BUILDING PERMITS BY STATESELECTED MID-ATLANTIC JURISDICTIONS

2000 THROUGH NOVEMBER 2009


*For privately owned housing units. Through November 2009, annualized.

Figure 11

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In the Washington metro area, the Federal Housing Fi-nance Agency (formerly OFHEO) reported a 0.3% an-nual decline in home prices for the 12 months ending September 2009, compared to a decrease of 12.2% for all of 2008. FHFA reported a national average home price decline of 3.8% for the 12 months ending September 2009. In contrast, the National Associa-tion of REALTORS reported a national average home decline of 11.2%, and a Washington area decline of 2.5% for the 12 months ending in the 3rd quarter of 2009. (FHFA and NAR use different methodologies to calculate price changes.) (See Figure 12)

From October 2008 to October 2009, Washington home prices fell 2.8%, according to the Case-Shiller index, placing 5th in a tie with Boston among major metro areas for 12-month performance. Washing-ton placed 9th for seasonally-adjusted monthly price gains, tied with Minneapolis, with a 0.2% price in-crease from September to October. By contrast, Phoe-nix, Las Vegas and Detroit saw annual price declines in excess of 15%.

WASHINGTON HOUSING OUTLOOK

The Washington housing market has entered the recovery phase of the cycle. We expect that a combination of continued Federal impact on the Washington housing market and a recover-ing labor market will continue to bring gains to the Washington housing market. The pace of the recovery may be uneven; however, in 2010, we

expect that renewed demand will continue to yield yearly price gains, with gains first apparent in the Outer suburbs, but extending to the other sub-areas by late 2010/early 2011.

THE APPRAISAL QUESTION: CONTINUED DEBATE

Appraisals are a key component of any home sales involving a mortgage. The appraisal – ordered by the lender – sets the market value of the house. During the housing boom, appraisers came under fire for lax standards, leading to overvalued mortgages. As the national housing market declined, parties on all sides of transactions raised concerns that it was difficult to accurately assess the market value of homes.

In an effort to increase transparency and accountabil-ity among lenders, buyers and appraisers, the Home Valuation Code of Conduct (HVCC) was established between Freddie Mac, the Federal Housing Finance Agency and the New York State Attorney General. It took effect on May 1, 2009; Freddie Mac and Fannie Mae will no longer purchase mortgages that do not comply with the HVCC.

The code applies to 1- to 4-unit single-family loans sold to Fannie Mae or Freddie Mac. The HVCC aims to establish independence of appraisers from lenders or other third parties who might influence the develop-ment, result or review of an appraisal.

Figure 12

ANNUAL ESCALATION OF EXISTING HOMESALE PRICES

*12-Month change through 3rd quarter.

Source: National Association of Realtors, Delta Associates; January 2010.


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The Federal Housing Administration has recently changed its policy to include modification to its ap-praisal requirements as well. The FHA will reaffirm its current policy regarding appraiser independence and geographic competence. In addition, brokers and bank employees who earn commissions on mort-gages will be barred from ordering appraisals and ap-praisals older than four months will not be valid.

Since the HVCC has gone into effect many lenders are choosing to work with appraisal management compa-nies (AMCs) to select appraisers. Many in the industry have found fault with the increased use of AMCs say-ing that the resulting reduction in appraiser fees and increase in the time it takes to complete an appraisal have negatively impacted the market. In addition, real estate professionals have argued that the process for appealing valuations is too lengthy, causing deals to collapse before an appeal can be considered.

Although the HVCC is due to expire at the end of 2010, government-sponsored entities such as Fannie Mae and Freddie Mac may continue to require that mortgages comply with all or part of the code.

RESPA UPDATES TAKE EFFECT

In early January new Federal rules governing mort-gages took effect with a new standard form for Good Faith Estimates. The update of the Real Estate Settle-ment Procedures Act (Respa) was announced in No-vember 2008 by the Department of Housing and Ur-ban Development and took effect January 1, 2010. The new rules mandate a new standard Good Faith Estimate that will assist consumers in comparing loan offers from multiple lenders. The new estimate form requires lenders to combine all the fees charged into one origination charge. Consumers may then com-pare the interest rate as well as the adjusted origina-tion charge, which includes points used to lower the interest rate and other fees charged.

Good Faith Estimates have always existed, however there was no standard format, making it difficult for consumers to compare lenders equally. The Respa update will require that lenders and mortgage brokers give consumers the estimate form within three days of receiving a loan application. Lenders are not allowed to increase the origination fee from the estimate and are also restricted from increasing other charges not included in the origination fee such as recording charges or title insurance by more than 10%.

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Congress passed legislation in early November 2009 that extended and expanded the $8,000 Federal first-time home buyer tax credit introduced in the Housing and Economic Recovery Act of 2008. The $24 bil-lion bill expanded unemployment benefits, provided tax benefits to businesses with operating losses, and expanded the housing program to more buyers while extending the original deadline to April 2010. The tax credit portion of the bill is expected to cost $10.8 billion.

Under this new legislation first-time buyers will re-ceive the same $8,000 tax credit previously offered, but will have until April 30, 2010 to enter into a con-tract on a home and until June 30, 2010 to close on that home.

The new bill also extends the tax credit to existing ho-meowners. Current homeowners who are purchasing a new primary residence were eligible for a $6,500 tax credit as of December 1, 2009 if they have lived in their home for at least five consecutive years during the previous eight years.

Both provisions are limited to homes with a purchase price of less than $800,000. In addition, individuals making more than $125,000 per year and couples making more than $225,000 per year are not eligi-ble. These new income limits represent a substantial

POLICY SPOTLIGHT: EXTENSION & EXPANSION OF THE FEDERAL HOME BUYER CREDIT

SECT ION THREE

increase from the previous tax credit legislation in-come limits of $75,000 for individuals and $150,000 for joint income tax filers. Anyone who collects the tax credit but sells their home within three years must return the credit.

The Federal home buyer tax credit has had a no-ticeable impact on the housing market since its in-ception. The National Association of REALTORS® (NAR) has estimated that 350,000 transactions may not have occurred nationally without the tax credit. This figure represents approximately 7.0% of NAR’s estimated 2009 total of 5.01 million existing home sales. Locally, we estimate that 1,900 transactions may not have occurred in 2009 if not for the Federal tax credit. NAR’s annual Profile of Home Buyers and Sellers for 2009 showed first-time buyers account-ing for a record 47% of national home sales, up from 41% in 2008. It is very likely that this increase can be attributed to the first-time homebuyer credit. The National Association of Home Builders estimates that the extended and expanded tax credit will gen-erate 180,000 additional home sales nationally.

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SECTION FOUR

How will rising mortgage interest rates affect activity in the housing market?

Interest rates on 30-year fixed rate mortgages fell to an historical low of 4.71% in Decem-ber of 2009 according to Freddie Mac’s weekly survey. This is the lowest rate since the survey

began in 1971. The Federal Reserve’s program to purchase mortgage-backed securities has helped to hold mortgage interest rates down despite turmoil in the financial markets. (See Figure 14) The Federal Reserve ramped up its purchase of mortgage-backed securities in 2008 to prevent the collapse of the mortgage finance market. As of No-vember 2009 Federal Reserve purchase of agency mortgage-backed securities accounted for about 80% of new securities issued by Fannie Mae and Freddie Mac. The Fed’s purchase program is scheduled to phase out during the first quarter of 2010, leaving government sponsored enterprises (GSEs) such as Fannie Mae, Freddie Mac and Ginnie Mae without a government buyer and reliant on private investors to purchase mortgage-backed securities.

The Fed’s exit and concerns about the stability of GSEs may cause an increase in the spread of mort-gage rates over Treasury bonds. According to The Wall Street Journal, activity by the Federal Reserve has caused these spreads to drop from approximately 2.8 percentage points in 2008 to 1.35 percentage points

AQ currently. As the Fed withdraws its current level of

support that spread will likely increase, causing mort-gage interest rates to rise.

The Mortgage Bankers Association’s (MBA) recent MBA Mortgage Finance Forecast projects 30-year fixed rate mortgage interest rates to increase to 5.7% by the end of 2010 and 6.2% by the end of 2011.

Projected increases in mortgage interest rates coupled with the expiration of the Federal tax credit will re-sult in a decrease in sales and refinancing activity na-tionally. Although the Federal tax credit for first-time homebuyers was recently extended and expanded to include current homeowners who meet specific crite-ria, this legislation will expire by April 30, 2010.

The MBA projects that mortgage originations will de-crease from almost $2.0 trillion in 2009 to about $1.5 trillion in 2010. Purchase originations are expected to increase from $718 billion in 2009 to $804 billion during 2010 and refinance originations are projected to fall from $1.246 trillion to $693 billion in the next year.

While an increase in mortgage interest rates may slow the turnaround in the national market, the local im-pact is likely to be less of a hindrance due to a more robust increase in jobs and consumer sentiment.

Figure 14MORTGAGE RATES30-YEAR FIXED RATE

*At December 2009.

Source: Freddie Mac, Delta Associates; January 2010.

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AVERAGE DAYS ON MARKET - EXISTING HOUSES WASHINGTON METRO AREA

1996 THROUGH 2009

SALES PRICE CHANGE - TRAILING 12 MONTHSWASHINGTON METRO AREA


SALES VOLUMEWASHINGTON METRO AREA, ALL HOUSING TYPES

1999 THROUGH 2009

SUMMARY DATA ON THE MID-ATLANTIC HOUSING MARKET

Summary:The Washington area saw a -0.3% change in exist-ing home values for the 12 months ending September 2009 (per FHFA data), ahead of the national average of -3.8%.

Summary: The 2009 sales volume was 56,954 homes: 11.4% high-er than in 2008. Sales unit volume in the 4th quarter of 2009 was 18.6% higher than in the 4th quarter of 2008, adding to the momentum gained in the 2nd and 3rd quarters at the height of the selling season and due to the anticipation of the end of the Federal tax credit for first-time homebuyers.

Summary:The average time on the market in 4th quarter 2009 was 72 days, down from 81 days at 3rd quarter and 104 days one year earlier.

Summary: Prices posted strong gains in December after showing increases in September and November. On a 12-month trailing basis, prices in December 2009 were 9.9% high-er than in December 2008.

Figure 15 Figure 16

Source: MRIS, GMU Center for Regional Analysis, Delta Associates; January 2010.

CHANGE IN EXISTING HOME VALUESSELECT METRO AREAS

Source: FHFA, GMU Center for Regional Analysis, Delta Associates; January 2010.

Figure 17 Figure 18

Source: MRIS, GMU Center for Regional Analysis, Delta Associates; January 2010.Source: MRIS, Delta Associates; January 2010.

SECT ION F IVE

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Summary: Prices rose 2.6% in the 4th quarter of 2009 from the previous quarter, and were 4.5% lower than one year earlier. Average time on market in the 4th quarter is 82 days, down from 89 days in the 3rd quarter but up from 77 days one year ago. Unit sales volume in 2009 is 16.7% higher than in 2008.

Summary: Prices fell 5.5% in the 4th quarter of 2009 from the previous quarter. Year-over-year prices are down 10.5%. Average days on market fell to 95 from 107 in the previous quarter. Unit sales for 2009 are 25.6% higher than in 2008.

Summary: The average price in the 4th quarter of 2009 fell 2.6% from the 3rd quarter, and is 10.5% higher than one year earlier. Time on market averaged 53 days in the 4th quarter – the lowest of any sub state area and below the regional average. Unit sales volume for 2009 is 3.8% higher than 2008 volume.

Includes: Arlington, Fairfax, Fauquier, Loudoun, and Prince WilliamCounties; Alexandria, Fairfax, and Falls Church Cities.

Includes: Frederick, Prince George’s, and Montgomery Counties.Includes: Anne Arundel, Carroll, Harford, Howard, and Baltimore Counties; Baltimore City.

NORTHERN VIRGINIAHOUSING MARKET INDICATORS

2003 THROUGH 2009

DISTRICT OF COLUMBIAHOUSING MARKET INDICATORS

2003 THROUGH 2009Figure 19 Figure 20

BALTIMORE AREAHOUSING MARKET INDICATORS

2003 THROUGH 2009

SUBURBAN MARYLANDHOUSING MARKET INDICATORS

2003 THROUGH 2009Figure 21 Figure 22

Summary: The average sales price in the 4th quarter of 2009 fell 6.1% from the previous quarter and was 7.5% lower than one year earlier. Time on market averaged 113 days in the 4th quarter, down from 117 days in the previous quarter. Unit sales for 2009 are 3.0% higher than the 2008 total.

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Source: MRIS, Delta Associates; January 2010. Source: MRIS, Delta Associates; January 2010.


Includes: Arlington, Fairfax, Fauquier, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities.

Includes: Frederick, Prince George’s, and Montgomery Counties. Includes: Anne Arundel, Baltimore, Carroll, Harford, and Howard Counties; Baltimore City.

NORTHERN VIRGINIASINGLE-FAMILY SALES

4TH QUARTER 2008 vs. 4TH QUARTER 2009

DISTRICT OF COLUMBIASINGLE-FAMILY SALES

4TH QUARTER 2008 vs. 4TH QUARTER 2009Figure 23 Figure 24

BALTIMORE AREASINGLE-FAMILY SALES

4TH QUARTER 2008 vs. 4TH QUARTER 2009

SUBURBAN MARYLANDSINGLE-FAMILY SALES

4TH QUARTER 2008 vs. 4TH QUARTER 2009Figure 25 Figure 26

Thousands of Dollars Thousands of Dollars

Thousands of Dollars Thousands of Dollars

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MEDIAN SOLD PRICESELECTED BALTIMORE METRO AREA JURISDICTIONS


MEDIAN SOLD PRICESELECTED WASHINGTON METRO AREA JURISDICTIONS

DECEMBER 2008 vs. DECEMBER 2009Figure 27 Figure 28

SALES BY DAYS ON MARKET4TH QUARTER 2009Figure 29

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LOCAL SPOTLIGHT: THE DISTRICT

the month of December 2009 was up 14.6% from one year earlier. The 4th quarter 2009 average sales price is down 18.5% from a peak in the 2nd quarter of 2008. The District has not experienced the severe price volatility that many other jurisdictions in the metro area have during the housing crisis. (See Figure 30)

Homes in this area have sold less quickly than in the Washington region as a whole, likely due to the high-er average price. The average time on market in the 4th quarter of 2009 was 82 days in the District, longer than the regional average of 72 days, but far below the city’s recent high of 105 days in the 1st quarter of 2009.

As of mid-January 2010, there are 1,297 actively marketing properties for sale, of which 285 are in foreclosure or are being marketed as a short sale. There are an additional 375 homes under contract, of which 160, or 43%, are in foreclosure or are being marketed as a short sale.

S ECT ION S I X

The District of Columbia was founded in 1790 and is home to all three branches of the United States gov-ernment as well as numerous foreign embassies and government agencies. Many organizations such as professional associations, non-profit firms, law firms, lobbying groups and finance firms have established headquarters in the District in order to be near the Federal government. The city’s resident population is nearly 600,000 and growing; however, during the work week the city’s population can swell to more than 1 million as commuters from surrounding areas enter the city for work.

The Washington metro area was recently ranked third on a list of “2009 Best Cities” by Kiplinger’s Personal Finance magazine, notably for its healthy economy, superior higher education and eclectic culture. The District continues to rank high on “best of” lists for walk ability, employment opportunity, and healthy liv-ing and has increasingly drawn a high number of “cre-ative class” workers composed of occupations such as scientists, engineers, authors and other knowledge workers and intellectuals that are associated with a high level of economic growth.

The average sales price in the District of $482,075 in the 4th quarter of 2009 represented a 2.6% increase from the 3rd quarter, and a decline of 4.5% from the 4th quarter of 2008. However, the average price for


AVERAGE SALES PRICEEXISTING HOUSES - DISTRICT OF COLUMBIA

1ST QUARTER 2007 - 4TH QUARTER 2009Figure 30

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REGIONAL SPOTLIGHT: MONTGOMERY COUNTY

SECT ION SEVEN

Montgomery County is conveniently located adjacent to the District. Incorporated cities and municipalities in this jurisdiction include Bethesda, Wheaton, Rock-ville, Gaithersburg, Germantown, Friendship Heights, Takoma Park, Chevy Chase and Kensington. Mont-gomery County covers nearly 500 square miles of land area and is Maryland’s most affluent and most populous county.

Transportation options are plentiful due to the coun-ty’s close proximity to the District. There are current-ly twelve Metro stations in two corridors on the red line in Montgomery County. Rail link by Amtrak and MARC train is also available. Access to the regional road network is convenient with I-95, the Capital Belt-way, I-270, and several other large arteries within the county’s borders.

Montgomery County is a significant employment cen-ter with 26 large firms with 1,300 or more employees. The largest employer in the county is the National In-stitutes of Health with over 16,000 employees. Other large employers in the county include Lockheed Mar-tin, Giant Food, Montgomery College, GEICO and IBM.

The average sales price in Montgomery County of $425,636 in the 4th quarter of 2009 represented a 4.3% decline from the 3rd quarter. However, average prices climbed 4.6% from December of 2008 to De-


AVERAGE SALES PRICE BY QUARTEREXISTING HOUSES - MONTGOMERY COUNTY



AVERAGE DAYS ON MARKETEXISTING HOUSES - MONTGOMERY COUNTY


cember of 2009. The 4th quarter 2009 average sales price is down substantially from the peak over the past three years in the 3rd quarter of 2007, by 34.2%. (See Figure 31)

The average time on market in the 4th quarter of 2009 was 73 days in Montgomery County, a decrease from last quarter’s average of 87 days and below a high of 118 days in the 1st quarter of 2009. (See Figure 32)

As of mid-January, there are 1,876 actively marketing properties for sale, of which 161 are in foreclosure and 415 are listed as a short sale. There are an ad-ditional 621 homes under contract, of which 361, or 58.1%, are in foreclosure or are being marketed as a short sale.

As of December 2009, Montgomery County has a 4.9-month ratio of inventory to sales, down from 8.1 months at December 2008. That ratio is below the regional average of 5.3 months and is one indica-tor of an improving housing market. However, until foreclosures and short sales abate further, meaning-ful price traction is not possible. Overall, Montgomery County seems to be at the cusp of a housing recov-ery, though the county may see further declines in the short-term.

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S ECT ION E IGHT

We believe the Washington metro area economy is currently in recovery, as the worst of the recession’s impact is behind us. Although conditions remain sluggish, a slow recovery is underway.

Payroll employment declined 15,300 in the Washington metro area over the 12 months ending November 2009. This represents a decline of 0.5%, compared to the national decline of 3.5% during this period. However, the region has a relatively low unemployment rate and one of the strongest economic bases in the country, buoyed by Federal stimulus administration. (See Figure 33) Job Change

With 3.0 million payroll jobs, the Washington metro area ranks the fourth largest job base among metro areas, behind New York, the LA Basin and Chicago. However, Dallas/Fort Worth follows the Washington metro area closely.

Despite a net job loss of 15,300 payroll positions in the metro area, four of the twelve sectors grew jobs over the past 12 months. The region continues to grow high-end jobs even as it sheds low-end jobs. However, it is Government hiring, rather than private sector activity, that is generating most of the job creation. Washington was affected by the national recession, but it is outperforming other large metropolitan areas. Over the 12 months ending November 2009, more than 437,000 jobs were shed in the LA Basin and Chicago.

Job Change by Sector

The top three sectors leading job growth are Government, Education/Health, and Professional/Business Services – with a total of 27,000 new jobs added to the economy in these three sectors.

The Government sector gained 17,300 jobs during the last 12 months, with 76% of these jobs created in the Federal government.

The Education and Health sector gained 5,200 jobs in the previous 12 months, with most of these positions in the health field.

The Professional and Business Services sector gained 4,500 jobs during the last 12 months.

Unemployment Rate

The Washington area unemployment rate is 6.1% at November 2009, up 180 basis points from one year earlier.

The Washington metro area has the lowest unemployment rate among comparable metros and compares favorably to the national rate of 10.0% in November 2009. The U.S. rate remained at 10.0% when preliminary December data was released. (See Figure 34)

THE WASHINGTON REGIONAL ECONOMY AND OUTLOOK

Figure 33

Source: BLS, Delta Associates; January 2010.

PAYROLL JOB CHANGELARGE METRO AREAS

12 MONTHS ENDING NOVEMBER 2009 Figure 34

Source: BLS, Delta Associates; January 2010.

UNEMPLOYMENT RATESLARGE METRO AREAS

NOVEMBER 2008 vs. NOVEMBER 2009

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Figure 35 Figure 36

* At September 2009.Source: GMU Center for Regional Analysis, Delta Associates; January 2010.

CORE ECONOMIC SECTORSIN CURRENT YEAR DOLLARS

WASHINGTON METRO AREA

COINCIDENT INDEXWASHINGTON METRO AREA

1988 - 2009

Coincident Index

The Washington Coincident Index, which represents the current state of the Washington metro area econ-omy, was 104.0 in September 2009, below the 20-year average of 107.9. However, the index remains above the low of 103.8 experienced in February.

Although the index is lingering around the level expe-rienced during the slowdown of 2001, it remains well above the level experienced during the early 1990s recession. (See Figure 35)

The Washington Region’s Core Industries

The Washington area’s gross regional product (GRP) was $401.3 billion in 2008, an increase of 3.1% from revised 2007 figures. We expect GRP in the metro area to have edged down 0.5% during 2009, once the numbers are finalized.

Approximately one-third of the Washington metro GRP is generated by the Federal government – the region’s most important core industry. A core industry is one that imports capital and exports a good or ser-vice. Total Federal spending in the Washington metro area was up in 2008 to $134.8 billion (a revised fig-ure from our prior reporting), a 7.8% increase from 2007. (See Figure 36)

Procurement spending is projected to rise 13.2% in 2009, once the numbers are finalized, to $75.3 billion in current year dollars, accounting for 53% of all Fed-eral funds flowing into the area economy. This level of procurement spending supports about 550,000 pri-vate sector jobs.

Procurement funding will build upon already-estab-lished government initiatives to increase the con-centration of Federal government contractors in the Washington area. While there has been some speculation about the Obama Administration tightening the rules on government contracting, it is unlikely to reduce the amount spent, in our judgment.

Washington Area Economic Outlook

We expect the Washington metro area economy to slowly recover during 2010. We believe the lo-cal economy hit bottom during the 1st half of 2009 and recovery is now underway. However, we expect the speed of recovery to be slow, as consumers and companies remain cautious. We expect consumer confidence will edge up moder-ately during 2010. Consumer confidence is currently very low and will remain challenged until healthy job growth is reported.

Note: Figures are estimates. Procurement figures do not include US Postal Service and FAA purchases.Source: Dr. Stephen Fuller, Delta Associates; January 2010.

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We believe GRP declined 0.5% during 2009, once the numbers are finalized. This decline is less severe com-pared to the national decline of 2.5%. The decline lo-cally is due to retail spending and construction – the two hardest hit industries in the metro area, which are taking longer to recover. Conditions should stabilize in 2010 with a GRP rise of 2.7%. This compares to the national GDP rise of a projected 2.5%.

Given these factors, in consultation with Dr. Stephen Fuller of George Mason University, we project that 21,000 payroll jobs were eliminated in the metro area in 2009, once the numbers are finalized, and that 23,900 jobs will be generated in 2010. (See Figure 37)

Figure 37

Note: Data restated since 2000 consistent with redefinition of metro area in March 2005.

Source: Dr. Stephen Fuller, Delta Associates; January 2010.

PAYROLL JOB GROWTHWASHINGTON METRO AREA

2000 – 2011


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BUREAU OF LABOR STATISTICS METRO AREA DEFINITIONS

AtlantaAtlanta-Sandy Spring-Marietta, GA

AustinAustin-Round Rock, TX

BostonBoston-Cambridge-Quincy, MA-NH (Metropolitan NECTA)

ChicagoChicago-Naperville-Joliet, IL-IN-WI

(Non-Metropolitan Division)

Dallas-Fort WorthDallas-Forth Worth-Arlington, TX

DenverDenver-Aurora, CO + Boulder, CO

HoustonHouston-Sugar Land-Baytown, TX

LA BasinLos Angeles-Long Beach-Glendale, CA (Metropolitan Division)

Riverside-San Bernardino-Ontario, CA Santa Ana-Anaheim-Irvine, CA (Metropolitan Division)

New YorkNew York-Northern New Jersey-Long Island, NY-NJ-PA

PhoenixPhoenix-Mesa-Scottsdale, AZ

San AntonioSan Antonio, TX

San Francisco BaySan Francisco-Oakland-Fremont, CA + San Jose-

Sunnyvale-Santa Clara, CA

South FloridaFort Lauderdale-Pompano Beach-Deerfield Beach, FL

Miami-Miami Beach-Kendall, FLWest Palm Beach-Boca Raton-Boyton Beach, FL

WashingtonWashington-Arlington-Alexandria, DC-VA-MD-WV

(Non-Metropolitan Division)

SINGLE-FAMILY HOUSING DATA

Northern Virginia is defined as Arlington, Fairfax, Fauquier, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities.

Suburban Maryland is defined as Frederick, Montgomery, and Prince George’s Counties.

The Washington Metro Area describes all of the jurisdictions listed above and the District of Columbia.

The Baltimore Metro Area is defined as Anne Arundel, Baltimore, Carroll, Harford, and Howard Counties; Baltimore City.

COMMERCIAL REAL ESTATE DATA

Office, Apartments, Condominiums

Northern Virginia is defined as Arlington, Fairfax, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities.

Suburban Maryland is defined as Frederick, Montgomery, and Prince George’s Counties.

The Washington Metro Area is defined by all of the jurisdictions listed above, plus the District of Columbia.

The Baltimore Metro Area is defined as Anne Arundel, Baltimore, Carroll, Harford, and Howard Counties, plus Baltimore City.

Retail

Northern Virginia is defined as Arlington, Fairfax, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities.

Suburban Maryland is defined as Montgomery and Prince George’s Counties.

The Washington Metro Area is defined by all of the jurisdictions listed above, plus the District of Columbia.

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ABOUT MRIS AND DELTA ASSOCIATES

Delta Associates

Delta Associates, the research affiliate of Transwestern, is a firm of experienced professionals offering consulting and data services to the commercial real estate industry for over 25 years. The firm’s practice is organized in four related areas:

• Consulting, research and advisory services for commercial real estate projects, including market studies, market entry strategies, asset performance enhancement studies, pre-acquisition due diligence, and financial and fiscal impact analyses.

• Valuationservicesforrealestatecompaniesand fractional interests in them.

• Distressed asset recovery services to include property performance analyses and enhancement studies, debt structuring evaluation and note valuations, portfolio assembly due diligence, valuations and litigation support.

• Subscription data for select metro regions for office, flex/industrial, retail, condominium, and apartment markets.

Delta’s Trends in Housing team includes: Greg Leisch, Chief Executive; David Weisel, President, Consulting Division; Alexander (Sandy) Paul, National Research Director; and Alyson Bode, Senior Associate.

For more information on Delta Associates, please visit DeltaAssociates.com

MRIS

Metropolitan Regional Information Systems, Inc. (MRIS) is the nation’s largest Multiple Listing Service. MRIS serves nearly 50,000 real estate professionals spanning Maryland, the District of Columbia, Northern Virginia, and parts of West Virginia and Pennsylvania – a total of 22,000 square miles.

Customers currently have access to over 66,000 active listings, an archive of 3.1 million “comparable” listings and close to 5.5 million public records containing tax, assessment, and deed transfer information about prop-erties throughout the region. The cutting edge technol-ogy designed by MRIS keeps real estate professionals’ business ahead of the curve.

MRIS is owned by 25 Shareholder REALTOR® Associa-tions and governed by brokers who rely heavily on input from the agents, brokers, and shareholders serving on vital committees.

When measuring both listing and selling agent activity, MRIS subscribers generated more than $36 billion in sales volume and engaged in over 102,000 transactions in 2008.

For more information on MRIS, please visit:mris.com

Headquarters 9707 Key West AvenueSuite 200Rockville, Maryland 20850301.838.7100

Headquarters500 Montgomery St.

Suite 600Alexandria, VA 22314

703.836.5700

© 2010 MRIS. All rights reserved. You may neither copy nor disseminate this report. If quoted, proper attribution is required. Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Census Bureau, Commerce Department, CoStar, Delta Associates, Department of Housing and Urban Development, Dr. Stephen Fuller and John McClain at GMU’s Center for Regional Analysis, Federal Housing Finance Agency, Federal Reserve, Freddie Mac, Internal Revenue Service, Kiplinger’s Personal Finance, Maryland Dept. of Business & Economic Development, Morgan Stanley Research, Mortgage Bankers Association, MRIS, NAHB, NAR, Primary Mortgage Market Survey®, Standard & Poor’s, The New York Times, The Wall Street Journal, The Washington Post, Treasury Department, USA Today, U.S. News & World Report, Washington Business Journal.

2010 Trends In Housing of Northern Virginia

Real Estate

Transcript of 2010 Trends In Housing of Northern Virginia