The healthy real estate market in Northern Virginia may be slowing down gradually, but it shows no signs of slumping, according to speakers at a recent economic summit.
The Northern Virginia Association of Realtors held its eighth annual economic summit in the Johnson Center Cinema at George Mason University Wednesday, bringing together experts from across the region to discuss current trends in the market and what to expect in the coming year.
“Sales prices are up 71 percent in the past seven years,” said Trish Szego, current chairwoman of NVAR. “Through July of this year, there have been 18,500 homes sold, which is up from the same time last year.”
“Well, the fundamentals are good, inflation’s not a problem,” said Dr. Stephen Fuller, professor of public policy at GMU. “The area is generating jobs. We added 1.7 million new jobs in the past year.”
“We’re running through seven months of job growth,” Fuller said. “Job growth is the best predictor of the real estate market. We need 40,000 to 50,000 new units to house people that are moving here for jobs, and we’re not producing anywhere near that number.”
The job growth boom is due in part to the increased spending of the federal government in the area, especially in the Homeland Security department, he said.
“The federal government has put almost $100 billion into the economy of Fairfax County,” Fuller said. “Federal contracts support the technology sector. The building industry will see an increase in school and federal expenditures. The market is running on all cylinders,” he said.
“I don’t see much that could go wrong,” he said.
“WHO WOULD have thought, with record budget deficits and a growing economy, that interest rates on mortgages would be so low,” asked Dr. David Berson, vice president and chief economist from Fannie Mae.
“Inflation’s going up, energy and food prices will increase for a period of time and then reverse course,” he said. “The underlying rate of inflation has increased from little more than one percent to a little over two percent,” he said. “Keep in mind, consumer spending is two-thirds of the economy. Market expectations of where inflation rates will go affects interest rates,” he said.
Interest rates on long-term mortgages haven’t changed much, he said. Berson said he expects the Federal Reserve, which raised interest rates one quarter of a percent last week, will continue to “tighten monetary policy. Interest rates are expected to be up to two percent by the end of the year and could possibly reach three percent by the end of next year.”
Berson said he agreed with Fuller, that job growth is the most important factor in the housing market.
“Home prices in the last five years has been a remarkable story,” he said. He said that housing prices have gone up 20 percent each year over the past few years, but that growth is “not sustainable. We’ve had excess demand for homes, affordability has fallen substantially. It’s difficult to get first-time buyers into homes anywhere in the metropolitan D.C. area, forcing them into sub-optimal housing or homes that are a long way from where they work,” he said.
Gerald Gordon, president and CEO of the Fairfax County Economic Development Authority, said that economic development is going strong in the county.
“The economy grows because of the federal government,” he said. “There’s been a $40 billion push in the Homeland Security sector. Businesses run by women and minorities are welcomed and thriving here,” he said.
DURING THE FIRST question and answer session, some concern was expressed about the influx of foreign investors in the area.
“You’ve all said nothing about an account deficit,” said Realtor Teddy Goodson. “People are refinancing, the deficit requires people to sell a good amount of treasuries to foreigners. We act as if we’re in an isolated economy, but we’re not. What influence does that have on the local economy?” she asked.
“Some analysts have shown concern about the account deficit because we buy a lot more from abroad than we sell,” Berson said. “I think it’s nice that countries from around the world want to sell us things at very low prices so we have more money left to buy other things. The only problem with the account deficit is if foreign investors decide not to invest here anymore,” he said.
The second half of the summit featured a panel discussion on real estate inventory in Northern Virginia.
“Housing is a wonderful investment, it’s the only one you can participate in,” said Debbie Rosenstein of Rosenstein Research Associates. “This region is very healthy, household and job growth is strong, housing sales are only limited by availability,” she said.
Realtors need to know to whom they’re selling, however.
“We know baby-boomers,” she said. “We’ve been selling to them for 20 or 30 years. Then there are the Gen-X buyers. They’re more family oriented, practical and self-reliant. To them, family rooms are more important, they want to spend their money on intelligent use of space. They’re looking for character in housing,” she said.
“With Generation Y, the 18 to 24 year olds, they’re beginning to come of age where they’re starting to think about buying homes,” she said. This generation, which identifies strongly with the Columbine shootings of 1999, focuses on safety. “They’re concerned about personal safety. They’re wary of the media. They have a propensity toward the visual and tend to be rapid decision makers,” she said.
And once people get into their homes, they need ways to get to and from work.
“In transportation, the market is not a factor,” said Bob Chase of the Northern Virginia Transportation Alliance. “That’s the reason we have one of the best housing markets and one of the worst transportation markets.”
“Our mass transit system moves 900,000 people a day. That’s five percent of the population, but 60 percent of transportation resources go toward mass transit,” he said. “How we choose to move people needs to reflect how people choose to travel.”
Traffic congestion costs the area approximately $2.3 billion each year, Chase said. “The transportation legacy we’re leaving our children is not one to be proud of,” he said. “There are solutions and plans on the maps, but we need to do more if we’re going to have the type of region we want.”
Steve Alloy of the Northern Virginia Building Industry Association said that there’s no shortage of land, but there is a shortage of building lots.
“There’s plenty of buildable land but the politicians have chosen not to let us build,” he said.
If more plots of land were open for residential development, much of the housing crunch could be alleviated, he said.
In addition, with so much money to be made by selling homes, many Realtors are not fully trained to help their clients.
“Not all new Realtors are necessarily trained to do their job,” he said. “Two-thirds of Realtor closing meetings do not have a Realtor present to help their clients.”
Steve Stein, founder of Stein & Associates and Mountain Valley Management, Inc., said that with so many people choosing to buy instead of rent, finding quality tenants is a challenge.
“The quality of tenants who can afford to rent has dropped,” he said. “The good news is, I think that’s changing. It all depends on the horizon the family is looking at to stay in the home. If the horizon is a year or two, they’re more likely to rent.”