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Housing prices in two-year dive

April 14, 2008 12:53 am

BY BILL FREEHLING

A look at Fredericksburg-area sales data for this decade reveals the dramatic increases in home prices and total sales from 2000 to 2006, and the sharp declines since then.

Below are among the area-wide findings. The "Fredericksburg area" is defined as the city and Spotsylvania, Caroline, Stafford and King George counties, as well as part of Westmoreland.

Median sales prices nearly tripled between the lows seen early this decade and the peaks of 2005-06, when area-wide median prices neared $350,000.

In 2004, median monthly sales prices shot up nearly 32 percent between January and December. Prices kept rising until they hit their peak monthly total of $349,990 in June 2006.

The peak sales months occurred a year before prices hit their highs. June 2005 was the peak month for home sales this decade, with 936 area houses selling for a total of about $341 million.

The median sales price last month was about 24 percent below peak prices. But the March 2008 median of $265,000 is still double the levels at the beginning of the decade.

The 175 homes sold in January 2008 were the fewest this decade. Of the 10 slowest months for units sold this decade, six have come since last September. Last month saw upticks in sales from the six months before.

The roughly $52 million in sales this past January was about an 85 percent drop-off from the June 2005 peak and the lowest since February 2002. Sales volume rose to about $81 million last month.

That sharp drop-off has had an effect on numerous area businesses dependent on housing. It has probably played a role in the declining membership of the Fredericksburg Area Association of Realtors, which went from 1,853 members in December 2006 to 1,488 last month.

Between May 2005 and August 2005, area homes spent an average of 28 days or less on the market before selling. Houses are now spending about 138 days on the market before selling.

During the boom, homes were selling for close to 100 percent of their list prices. Since this past October, homes have been selling for 10 percent less than list prices, on average.

January and February tend to be the worst months for sales, while June through August have been the busiest months this decade. The same trends hold true for time on the market and median prices.

As deputy director of George Mason University's Center for Regional Analysis, John McClain has closely studied housing trends in the Washington metro area.

Since 1975, McClain said, housing prices in the United States have increased 5.7 percent a year. In Virginia, they have increased 6.1 percent a year.

CAUSES OF THE TRENDS

The recession at the beginning of the 1990s caused home prices to stay flat until about 1998, McClain said. He thinks the housing market's advance until about 2004 was a rational move caused by years of price stagnation as well as local increases in job growth and wages.

McClain thinks "irrational exuberance"--fueled by low interest rates, loose lending standards and a belief that housing prices would keep going up--took over in 2004. Housing prices rocketed upward, and residential developments were built.

But rising interest rates and tighter credit standards slowly took air out of the housing and credit bubbles, which had fully burst by the latter part of 2007.

Lenders are now frequently requiring home buyers to pay 10 percent down for a house, said Melanie Thompson, who owns Century21 AdVenture in Spotsylvania County and was president of the Virginia Association of Realtors last year. During the boom, many people bought a house for nothing down.

Thompson said tighter credit is making a home purchase impossible for many.

Meanwhile, people who bought houses they couldn't afford are losing them with increasing frequency. Thompson said others who have no equity are walking away from their homes rather than pay a mortgage that's significantly more than current housing prices.

Between September 2007 and December 2007, according to the GMU center, short sales and foreclosures represented about 10 percent to 12 percent of the total listings in Stafford and Spotsylvania counties. A short sale occurs when the lender agrees to let the borrower sell the house for less than what remains on the mortgage.

Because of foreclosures, short sales and the building boom, home inventories remain high. The GMU center has found that about 20 to 25 homes were listed in January in Stafford and Spotsylvania counties for every one that sold there that month.

While conditions have been tough in the Fredericksburg area, they pale in comparison to the struggles in some of the worst-hit markets, including Florida, California and Ohio. Closer to home, Prince William and Loudoun counties have seen higher foreclosure rates and price declines than those in the Fredericksburg area.

WHAT COMES NEXT?

It's anybody's guess how long the market will stay down or how much further, if at all, local housing prices will fall.

McClain thinks there could be more price declines, and he doesn't see prices heading up much before 2010.

But both McClain and Thompson see some positives. Despite the imbalance between supply and demand, McClain is seeing a floor below which prices are not falling. He said some people will simply not sell their houses if prices get too low.

Further, McClain said, the overall regional economy remains sound despite the recent slowdown. He said housing problems are more of a credit issue than an economic one. Thompson noted that commercial real estate is holding up better, and some Realtors are transferring into that market.

McClain expects prices to fall to 2004 levels. The median price that year in the Fredericksburg area was $250,000--a figure not far below the median price so far this year.

McClain said we may be getting close to a bottom, but he thinks prices will stay there for a while as excess inventory is worked off.

Craig Schulin and Jim Hall contributed to this report.

Bill Freehling: 540/374-5405
Email: bfreehling@freelancestar.com