Home prices are down--and sellers are eager. But buying a house isn't always easy.
When Brian Connolly and his wife, Laura, went house-hunting in the Bethesda-Chevy Chase area this past fall, it seemed like a good time to buy. Prices had come down, and interest rates were the lowest since 1971. Clearly, they believed, it was a buyer’s market. But the couple’s path to homeownership was tortuous, and far more challenging than they’d expected. Over three frustrating months, they twice thought they’d made deals, only to see them fall through. Their ultimate purchase, a Bethesda colonial, was also no given.
In today’s real estate market, homes are a tough sell—and a tough buy. Interest rates are low, but credit is tight. Prices are lower, but they could drop even more. Sellers hoping for the best price are clinging to recent comparable sales that are already outdated. Buyers hoping for lower prices and interest rates are more often looking than buying.
“It’s a great time to be a buyer—but if you are trying to live in a fabulous location in a house you really, really love, you are not going to steal that house, [or] get the deal of a lifetime,” says Bethesda Realtor Jane Fairweather. “…Free is not what we’ve gotten to in this market.”
In the Bethesda area, prices are down but—unlike in many other parts of the country and other, less affluent communities in the Washington, D.C., metro area— not drastically. For example, in Bethesda’s 20817 ZIP code, the average home sale price was 4.7 percent lower in 2008 than in 2007, dropping from $1.08 million to $1.03 million, according to transaction records. In ZIP code 20814, which includes downtown Bethesda, the average sales price dropped 15.3 percent, from $980,514 to $831,072; in Chevy Chase’s 20815 ZIP, prices fell 15.4 percent to $1.05 million; Potomac’s 20854 ZIP fared better: the decline from 2007 to 2008 was a mere 5.9 percent, from $1.17 million to $1.1 million.
According to syndicated real estate columnist Kenneth R. Harney of Chevy Chase, “Bethesda is by no means a microcosm of the country. Its market has held up extremely well. Some neighborhoods have had virtually no [price] decline.” That means that those who don’t have to sell can wait, and buyers have a limited number of homes to choose from. “It’s a complex mix,” Harney says. “But, generally, it’s a better time to buy than to sell.”
Though homes are generally selling for less and staying on the market longer, the number sold or under contract in Bethesda/Chevy Chase ZIP codes from September 2007 to January 2008 versus September 2008 to January 2009 dropped only slightly, from 251 to 238. Further, in the affluent Bethesda-area ZIP codes, there are few foreclosures or bank-owned properties on the market. More common are short sales, in which the purchase price is less than what the seller owes on a house, requiring the mortgage holder to incur the loss. But even short sales are the exception in the Bethesda area.
Deals gone south
Connolly, a native Washingtonian and grandson of Paul Connolly, the co-founder of the blue-chip Washington law firm Williams & Connolly, thought he’d have little trouble buying a house. Instead, the assistant vice president for Jones Lang LaSalle, a commercial real estate services firm, says he and his wife found it to be a “very frustrating and emotional process.” In a search that began in September, the first-time buyers looked for a home no more than five minutes from the Maryland-D.C. line. Focusing on Chevy Chase and Bethesda, they first bid $685,000 on a home off East West Highway in Rock Creek Forest that was newly listed at $700,000. One day later, another buyer’s full-price offer was accepted.
In late October, the Connollys offered $20,000 below the $585,000 list price on a town home in Kenwood Forest off Bradley Boulevard. They settled on a price of $572,000, but that was not to be, either. “We submitted a contract,” Connolly says. “The next day we were advised they were taking an all-cash offer from an elderly couple in Chevy Chase who’d sold their house and wanted to downsize. So that [deal] went south.”
In December, the Connollys put a contract on yet another house, a brick colonial built in 1940 on Greenway Drive near Friendship Heights. The owner, a Fannie Mae employee, had relocated to Chicago. As part of the move, Fannie Mae bought the house and the transaction was moving slowly to settlement. But Connolly also was pessimistic that this sale would go through, and he worried about locking into a fixed, 30-year mortgage at 5.35 percent with the possibility that interest rates could go even lower.
“It’s a very complicated market, period,” says Minka Goldstein, a Bethesda-based Long & Foster agent. “What is shocking is that it doesn’t matter what price range you’re in. It doesn’t matter whether your buyer is financially capable or not. There seems to be always complications and potential issues that make the transaction very difficult.” Declining prices and lowering interest rates have proved problematic for sellers, especially those who paid top dollar at the market’s peak in 2005. These homeowners are reluctant to list their homes at prices realistic for today’s market, according to several real estate agents.
A big unknown is how low prices will go. “Have we hit bottom? My crystal ball’s broken,” says Kristin Gerlach of Gerlach Real Estate in Chevy Chase. “Even if [the prices] slip another percent or two, it’s still a wonderful place to buy and a better place to invest money than on Wall Street.” This is not Florida or California, or even Germantown, where the average sales price of $360,000 in December 2008 was 40 percent below the average $502,955 price tag in December 2007. Prices here have declined, but not plunged. “It goes by neighborhood, not even by ZIP code,” Fairweather says. “Potomac, Bethesda, Chevy Chase do better [than the rest of Montgomery County].
We do have much more price stability. So All we’re really dealing with are market factors— they’re bad enough—not foreclosures. Most people are afraid. I had a small house [off Greentree Road in Bethesda] listed for $625,000,had a lot of people in there, nobody buying it. We dropped it to $599,000, then sold it for $570,000 in a few days.”
Hope springs eternal with a new administration in the nation’s capital and the coming of spring. Still, opinions about what will happen in the market differ. Says Sandra Sugar, a Bethesda agent for Coldwell Banker: “More people relocating here will mean more renters, as well as more buyers.” But the current glut of rentals, she says, is causing some sellers to keep their homes off the market, in the expectation that more house-hungry buyers in the upcoming months will result in more sales at higher prices. Still, Sugar adds, “We anticipate a fantastic spring.” Fairweather, however, thinks the spring market could be tricky. “If the inventory swells as it usually does in the spring…and buyers do not come out in large numbers, we could have a huge supply of homes that no one can buy or is willing to buy,” she says. “What then? The prices decline even more.” The 10 percent of sellers who must sell will lower prices further, “setting the bar very low for future neighborhood values. This could become a very slippery slope for homeowners,” Fairweather says.
As for the incoming administration, she says, “The rule of thumb is Democrats rent, Republicans buy. Democrats do not typically come out of big business. They are not normally fat-cat corporate types. Democrats hail from nonprofits, law firms, nongovernmental organizations and government jobs. These folks do not have the resources to own two homes, one in D.C., the other in their home state. A few will buy, of course, but not enough to make a difference.”
In general, agents say, high-end homes, those priced at more than $1.5 million, are taking longer to sell. “For every $1.5 million house sold these days, two houses listed for under $1 million are sold,” says Coldwell Banker Realtor Charles Bressler. Homes in Bethesda and Chevy Chase are selling more quickly, though not as quickly as in boom days past. The buyers tend to be younger than 50 with a secure job, excellent credit and no plans to move again soon, Bressler says.
In this climate, clarity remains elusive. There are enough conflicting and confusing statistics—and opinions—to befuddle even the experts. The long-awaited real estate bottom didn’t materialize in 2008, and the outlook for 2009 remains cloudy. “With so much uncertainty surrounding our economy, any reputable forecaster would place a super-sized asterisk next to his or her forecast,” J.P. Montalvan, a Bethesda agent for TTR Sotheby’s International Realty, wrote in a New Year’s letter to clients. “Factors leading to dropping demand and increasing supply [are] likely to spell lower prices in 2009.”
For sellers, it’s important to keep things in perspective. Home prices in Chevy Chase, for example, “with the highest sales prices in Montgomery County in 2007,” tripled from 1997 to 2007, Montalvan wrote. So a 15.4 percent drop there in 2008 still left home owners who’d bought in 1997 or before with a lot of equity.
But those who have purchased their homes since 2005 and need to sell could face losses. For example, one new house in the Alta Vista Terrace area of Bethesda off Old Georgetown Road replaced a 1951 teardown. The arts and crafts-style house first went on the market in May 2006 for $1.45 million, with four price reductions by the end of the year, but no sale. In early January, it was listed at $950,000, less than what is owed on the mortgage. The reductions brought four offers and one contract, but the buyers backed out. Finally, an offer of $950,000 was accepted. But the sale was still bogged down early this year in what Fairweather called “the bank processing maze.” Two weeks later and without explanation, the bank holding the mortgage loan canceled the sale. “It’s insane,” Fairweather says.
Even if a deal falls through, Fairweather says, “Price is the only weapon sellers have. They can’t change market conditions. You can decorate and have the most fabulous house, but if there are 50 or 60 [houses] competing against you and you’re getting only two [potential] buyers a month, condition is not enough. We’re in a price war now.”
Location still matters, Fairweather says, but she cautions, “In [only] one or two Bethesda neighborhoods location is enough to carry [sellers] through, and even there they have to lower their prices.”