In the Northern Virginia region, sales were up 16 percent in the first six months of 2009 compared with the same period in 2008. The strongest gains were in Fairfax County, where the number of sales was up 19 percent. However, as sales activity has picked up, prices continue to fall region wide. In the first half of this year, the average price of a home sold in the Northern Virginia region was about 14 percent lower than the average price in the first half of 2008. When analyzing the types of homes selling, it is evident that lower-priced homes are driving sales in 2009.

 

The number of homes sold for under $200,000 in the NVAR region increased from 470 in the first six months of 2008 to 1,112 in the first six months of 2009, an increase of nearly 200 percent (Figure 1). Sales of homes priced in the $200,000s were up 52 percent. Sales of higher-priced homes have been markedly lower in 2009 compared with 2008. For example, the number of homes sold for between $800,000 and $899,999 was down almost 30 percent in the first half of 2009 compared with the first half of 2008.

 

There is a shift to lower-priced homes across all housing types in the region. In the first half of 2009, about 40 percent of condominiums sold for less than $200,000, compared with only 19 percent of condominiums sold during the same period in 2008. Similarly, 44 percent of single-family attached/townhomes sold for under $300,000 in 2009, compared with 24 percent in 2008. And among single-family detached homes, 34 percent of those sold in the first six months of 2009 sold for less than $400,000. In the first half of 2008, only 20 percent of single-family detached home sales were below $400,000.

 

The sales trends are directly related to the new listings coming on the market. In the first half of 2009, there were nearly 2,000 new listings in the Northern Virginia region priced under $200,000, representing about 12 percent of new listings. In the same period during 2008, only about 7 percent of new listings were under $200,000.

 

At least three factors are at play: 1) sellers are lowering their prices to attract buyers, 2) foreclosures and short sales are forcing some owners to sell, and these homes tend to be in the lower price ranges and 3) owners of less-expensive homes are selling while potential sellers of higher-priced homes are waiting on the sidelines.

 

Despite an increase in sales activity of lower-priced homes, homes under $200,000 were on the market longer than homes in slightly higher price ranges (Figure 2). In the first half of 2009, homes selling for less than $200,000 were on the market an average of about 100 days, compared with 80 days for homes in the $200,000s, 75 days for homes in the $300,000s and 71 days for homes in the $400,000s.

 

Thus, while the first half of 2009 saw a dramatic rise in home sales under $200,000, many of these lower-priced homes still linger on the market and homes priced in the $400,000s seem to be moving fastest. Several factors may be creating this situation. First, many homes in the NVAR region priced under $200,000 are condominiums. It has become increasingly difficult for condominium buyers to find financing. Since foreclosure rates nationally have been higher for condominiums, lenders have been more hesitant to lend. Also, Fannie Mae and Freddie Mac have been more cautious about insuring loans made to potential condominium buyers. Compounding that, Fannie Mae now requires up to 30 percent down to avoid an interest rate surcharge on a loan for a condominium, and it will only insure loans to people buying new condominiums in projects where at least 70 percent of the units are sold or under contract to owners.

 

The FHA, which is one of the only alternatives for buyers without a 20 percent down payment, will provide loans only to condominium buyers purchasing a home in an FHA-approved condominium project. The difficulty in finding financing for condominium purchases likely has slowed the sales of new condominiums in the region. It has also made it more difficult for buyers looking for affordable housing.

 

Foreclosures and short sales, which tend to be concentrated among lower-priced homes, will also increase the days on the market of these homes. While foreclosures and short sales have not been as prevalent in the Northern Virginia region as they have in other parts of the Washington D.C. metropolitan area, they do have an effect on the lower-priced market.

The major impediment to increasing sales activity among higher-priced homes seems to be the down payment. Fannie Mae recently reinstated higher-level conventional loan limits for the Northern Virginia region to $729,750. As a result, the interest rate on a 30-year fixed rate mortgage of between $417,000 (the general Fannie Mae loan limit) and $729,750 is only about 0.5 percentage points higher than the rate for a loan under $417,000. (Non-conforming jumbo loans above $729,750 typically still have interest rates of 2 percentage points or so higher.) However, Fannie Mae requires 20 percent down. In most cases, a move-up buyer will have to sell a home at a reasonable profit to be able to put 20 percent down on a new home. This “trickle up” effect will take time and will start with an increase in sales of moderately-priced homes. The conforming jumbo limit of $729,750 converts to a limit of about $650,000 beginning January 1, 2010.

 

During the next few months, it is expected that more moderately-priced homes will continue to sell well, particularly townhouses under $300,000 and single-family detached homes under $400,000, while condominium buyers will find good prices but have difficulty obtaining financing. As more move-up buyers are able to sell, they will put pressure on the higher-priced homes. Buyers looking at homes above $700,000 should be aware of the relatively favorable interest rates that may not be available in 2010.