GOING SOFT

Washington home market softens as investors sell
Thu Oct 20, 2005 06:12 PM ET
By Ilaina Jonas and David Lawder

NEW YORK/WASHINGTON, Oct 20 (Reuters) - In the Washington D.C. area, once one of the strongest residential real estate markets, things are going soft, and that's becoming hard on home sellers and some home builders.
After hitting a high in May, the number of contracts in Washington D.C. and its surrounding Virginia areas of Prince William, Loudoun, Fairfax and Arlington counties have fallen by about half, according to the Greater Capital Area Association of Realtors. Meanwhile, inventory of houses for sale has doubled and in some cases tripled, and homes are staying on the market 30 percent longer.
In Falls Church City, contracts peaked in April and inventory is double that seen in December.
Too many houses are for sale, experts said. Speculators -- who last year bought homes, not to live in, but to sell or "flip" within a year -- are trying to cash in on the price increases now. "For Sale" signs are sprouting on lawns and depressing prices throughout the market, analysts and Realtors said.
"Anything over $500,000, especially in the suburbs, is just sitting." said Gay Ruth Horney, of Long & Foster Real Estate Inc. in Maryland's Montgomery County, where inventory rose 5 percent and homes stayed on the market 7 percent longer than in September 2004.
Would-be landlords have discovered that they are not able to achieve rents high enough to cover their mortgages. she said.
"The rents aren't high enough to cover their mortgage so people are selling" she said.
At this week's average 30-year fixed U.S. mortgage rate of 6.1 percent as recorded by Freddie Mac (FRE.N: Quote, Profile, Research) , a $500,000 house requires a monthly payment of $2,424 after a 20 percent down payment. That excludes insurance, taxes and utilities.
"If people can spend that kind of money, they want to buy, not rent," Horney said.
"Things are sitting longer, and I think what's happened is that the buyers have kind of rebelled," she said. "They're not willing to pay these kinds of prices."
Earlier this week, home builder NVR Inc.(NVR.A: Quote, Profile, Research) reported quarterly earnings that missed Wall Street's projections, blaming it on the weak Washington market. NVR, based in Reston, Virginia, has the greatest market share in the area.
In addition to NVR, Toll Brothers Inc.(TOL.N: Quote, Profile, Research) , Hovnanian Enterprises Inc.(HOV.N: Quote, Profile, Research) and Comstock Homebuilding Companies Inc. (CHCI.O: Quote, Profile, Research) have the greatest exposure to Washington. They report later, but Comstock said net new orders in the quarter fell by nearly 60 percent.
JMP Securities analyst Jim Wilson said Washington D.C. is just the most recent of the over-heated speculator-infested markets to be hurt when those investors decide to leave just as quickly as they arrived.
"They came down in California and Vegas last year," Wilson said. "Now they're going to come down in D.C."
The investor-inflicted softness has analysts watching other red-hot markets.
"We will continue to closely monitor markets with a significant investor presence such as in Arizona and Florida for a rise in inventory levels," Banc of America Securities analyst Daniel Oppenheim wrote in a research note, "However, we believe demand continues to far exceed supply in those markets."