Many, myself included, often boast about Northern Virginia, and DC’s hot real estate market. There is a lot of substance to that angle; the number of homes selling in a mater of days, or the number homes selling with multiple offers are top of mind for me. Despite the continued struggles around the country, places like Arlington, Falls Church, and Alexandria have had real estate markets that have held steady by comparison.
Though that is all true, the key distinction that we can’t overlook is, “by comparison”. I thought it was worth carving out a few moments to make sure a broader view of the Northern Virginia and DC real estate markets were represented. See, there is another side to the coin, and that is the fact that hundreds of home owners are still struggling to find solutions after getting caught up at the top of the real estate bubble. Values have held firm relative to the rest of the country, but in most neighborhoods they did drop first before stabilizing, and often by tens of thousands, if not hundreds of thousands of dollars. It is this continued drag on the market that is keeping low interest rates, and the quick, multiple offer sales from creating runaway home values.
This is the story for one Falls Church home that I will not mention specifically. In 2002 this home was purchased for just shy of $450,000. A sizable home and well within the confines of The City of Falls Church, even by today’s standards that would be an outrageous steal! That owner sold the home in 2005, just 3 years later, for $750,000. An increase in value of roughly $100,000 per year during their ownership.
So, that was now 7 years ago. Surely the current owner should, by now, be able to at least sell it for what they bought it for, right? Not in the least! For better or worse these owners are taking a swing at the $750,000 price tag, however, all the data from that neighborhood over the last year suggests they are overshooting by about $75,000. Even if they get an offer at that price, an appraiser is going to come in and quickly bring things back down to earth.
[I show this to make a point: In 5 years prices have shown little to no change. This looks more like an EKG than real estate data. The peaks and valleys are mostly created by what sold rather than actual changes to the value of individual homes.]
The positive side is that, after a $300,000 run-up in prices in just 3 years (almost $400,000 if you take the property’s value in 2001 into account), they are only down $75,000 after the bubble popped. In an environment where many neighborhoods are back down to 2004 or even 2003 prices, that is a HUGE win.
The other side is that even many of the winners in todays re-sale real estate market are losing at the closing table. Take the average commission into account, and this owner is looking to lose somewhere north of $100,000.
There are a lot of positive signs out there in today’s real estate market, especially in areas like Arlington, Falls Church, Alexandria, and the District. There is also a prolonged period of opportunity for buyers taking place. But that is just one side of the story, and in many cases opportunity for one is coming at the expense of another. It just so happens, the more who capitalize on this opportunity, the sooner the tension eases for those in trouble and ultimately fewer owners will be impacted in quite this way.