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After the Boom ...

After trending upward for so long, the housing market enters a 'transition' — but to what?

For years, water cooler chatter had centered on the outcome of last night’s game or who was voted off "Survivor." But in the past several years, talk had been one-upped by real estate narratives: how a neighbor made a killing after buying a condo two months ago or how a house on the block was selling for double what it was worth just three years ago.

And it wasn’t just McMansions that shot off the home appreciation map, it was everything from one-bedroom condos to 20-year-old townhouses. Homeowners from Alexandria to McLean basked in the boom.

NOW, IT’S SAFE to say, the boom is over. The period, roughly from 2000 to 2005, experienced “unprecedented” average yearly increases in home values, said Lawrence Yun, a senior economist with the National Association of Realtors.

As the region’s real estate market transitions out of the boom and into its predicted correction, many residents are slowly adjusting to the new reality of a cooler, more normal market. But the market isn’t waiting.

In three months, from November of last year to February of this year, monthly home appreciation dropped 15 percent, according to the Metropolitan Regional Information Systems, Inc. (See box).

When home appreciation slowed to an average 6-percent last February, it broke a streak of 34 consecutive months of double-digit rate increases. In April, home appreciation slowed to 5 percent compared to April in 2005 when it was 25 percent. Meanwhile, compared to last year, inventory continues to rise, while sales slow.

But, what may be the most significant change to sellers, homes are not selling as fast. In April, the average home stayed on the market 49 days compared to a year ago when it was 12 days, according to MRIS.

Yet despite all the recent sluggishness in the market, experienced brokers say nothing out of the ordinary is happening. In fact, the trends, like the rapid rise in inventory and the drop in sales, were to be expected, said David Howell, managing broker of McEnearney Associates in McLean. It’s all part of a normalizing market.

“THIS TIME LAST year was about as white-hot a real estate market as I’ve ever seen,” said Howell. “So anything we look at compared to that will look pretty shabby.”

Many of the most distressing figures, like average days on market and the drop in home appreciation, Howell said, continue to remain above the national averages. “We expect to experience a slowdown after a boom market because markets seek balance over time,” said Howell.

“We know we’re deep in the throes of a balancing market as compared to a hectic market,” said Jill Landsman, director of communications and marketing for the Northern Virginia Association of Realtors. She pointed out that more than three times as many homes are on the market now as last year, yet more than 20 percent fewer sales.

“We remain highly optimistic that this is just more of the status quo rather than a trend downward,” said Landsman.

EXPERTS AGREE that the local housing market remains protected by steady job growth in the region and relatively low interest rates.

Yun said, compared to 1994 when home appreciation dipped into the negative, today’s market is totally different.

In 1994, “the housing market was just coming out of a local economic recession, and although jobs were being created, people still faced higher interest rates,” said Yun. “So I guess, the storyline is the housing market is very interest-rate sensitive.”

With rates now hovering around 6.6 percent combined with healthy job growth, the area isn’t likely to experience the collapse of 1994 and 1995, according to Yun.

Howell remembers that the market transitioned very quickly after the boom during the late 1980s, but he also thinks that too many dissimilarities exist to make a fair comparison. Today, he says, the economy is healthy. Conversely, in the time leading up to 1994, the area faced reductions in the federal government workforce and reduced federal spending, both contributing factors to the decline, said Howell.

Brokers continue to advise sellers and buyers to be realistic and adjust to the post-boom market. But today’s landscape, which could easily be perceived more negatively, is all a matter of perspective, said Howell.

“If we hadn’t come out of the market we just had, people would say, ‘Not bad.’”