If anyone knows the cycles of the Northern Virginia residential market, it's the people at International Developers, in Arlington, Va. Young professionals live in many of the company's signature high-rises near metro stops (many were built long before transit-based housing was en vogue) in Northern Virginia. For the other end of the spectrum, it built the Leisure World of Virginia seniors complex in Loudoun County. And, if you need even more proof of the builder's impact on the Washington area market, think about the most famous burglary in the nation's history. Yes, the president of IDI, Giuseppe Cecchi, developed the Watergate, too.
"We're not sure when the turnaround will happen," Dreyfuss says. "It's a better summer than we anticipated, but I hope that the fall will bring a more dramatic change. There's no way to predict it."
Dreyfuss isn't alone in his trepidation. The Northern Virginia market was one of the poster children for the real estate boom in the first half of the decade. Then the tables turned and supply suddenly overtook demand, leaving loads of inventory on the market. As that supply (especially in the condo sector) burns off, home builders and market watchers remain steadfast in their belief that better days are coming. Why? The Washington metro region has been a jobs generator, churning out 242,700 new jobs between 2000 and 2005.
The Fallout
In 2004, you could launch sales for a condo near a metro line in Arlington and you might get customers camping out all night for a spot in the development. Even better, The Washington Post and New York Times may do a story about it. But, overbuilding, coupled with risky mortgages and artificial demand, brought an end to the long lines of people jockeying to get into condo projects.
"Things slowed in November 2005, but I think the market was bad well before that," Dreyfuss says. "In 2006, people were canceling and didn't want to go through the 2005 contracts. In hindsight, the buyers in 2005 weren't real. They were in it because the market was escalating. As soon the market slowed, they didn't want to close."
In those days on the single-family side, things were equally hot, especially in the Western and Southern areas of Northern Virginia, where land is more plentiful than inside the beltway. "In 2004 and into early 2005, price escalation of 25 percent or more annually was not out of the question in certain areas," says Kenneth Wenhold, regional director of the Washington Metro Region for Metrostudy, a market research company based in Houston. "Even rural counties, such as Culpeper County, Va., saw this type of escalation as demand for new housing far outpaced supply. "
Once the buyers dried up, the condo, townhome and single-family builders had to adjust. "Homes that were $500,000 are now $300,000," Wenhold says.
Now, well over a year and a half after the bottom fell out, many home builders report that things haven't gotten much worse. But they haven't gotten much better either. Bill Gilligan, Toll Brothers' regional president for Maryland, Virginia, and West Virginia, says the company's sales are off 40 percent to 50 percent of two years ago and about 15 percent from last year.
"We haven't experienced any rebound," Gilligan says. "I don't think we could say it has gotten any worse. We're convinced it won't get any worse, but we have no idea when it will get better."
During good times, Dreyfuss sells about 10 units a month. When the market is booming, he does about 15 sales a month. Now he's closing about four to five units a month. Basically, things are moving. It's just not as fast. "We're like a racehorse that's trotting," he says. "We'd like to run faster because we have the staff and capacity to do it, but we don't have the market."
Hanley Wood Market Intelligence (HWMI) sees much of the same malaise in the Northern Virginia market that Gilligan and Dreyfuss do. The research group says single-family sales are down 7.6 percent, townhomes fell 4.7 percent, and condos dropped a whopping 44.9 percent from January?May 2006 to the same period in 2007. Sales prices fell across all product lines, too. Single-family home median sales prices dropped 9.4 percent, townhome sale prices were down 13 percent, and condo sales prices declined 9.5 percent.
"Single family is holding its own, townhomes are holding their own and condos are taking a big hit this year," says Lance Ramella, senior managing director for HWMI.
Learn more about markets featured in this article: Washington, DC.
