Northern Virginia Real Estate: Vienna, Oakton, McLean, Great Falls, Reston, Fairfax, and surrounding areas.

reprinted from http://nvar.com/update/2008_10/1_coverstory.pdf

by Michele Lerner 

Real estate professionals often analyze the week-by-week or month-by-month state of the local market, but stepping back to look at the big picture can provide some valuable insights. The recent market slowdown may leave Realtors® feeling blue, but industry experts have a rosy, long-term perspective on Northern Virginia’s continued growth.  

“This may be a different market in the coming years, but it is still a thriving, prosperous market for real estate professionals,” says Sid Dewberry, chairman of the Board of Directors for Dewberry®, a leading developer in Northern Virginia for more than 50 years.

John McClain, Senior Fellow and deputy director of the Center for Regional Analysis at George Mason University, anticipates that the Washington area, and Northern Virginia in particular, will continue to be among the wealthiest regions in the country.  

Seven counties in this region are among the top 17 wealthiest in the nation, says McClain, including Loudoun, Prince William and Fairfax counties in Virginia. Those three counties are within the top 10 wealthiest counties in the country, according to a 2006 Census Bureau report.  

“We have a highly educated workforce, with the most jobs in professional and government offices,” says McClain. “That mix of higher paying jobs is not expected to change.”

Jo Anne Johnson, managing broker of Westgate Realty in Falls Church believes that the continued growth of cultural diversity in Northern Virginia will have a positive long-term affect on the real estate market.  

“The two things that will keep our housing market strong are immigration and being close to Washington, D.C.,” says Johnson. “We are fortunate in this area that because of our proximity to Washington, D.C. we don’t lose jobs. We also have good schools in Northern Virginia, which keeps the real estate market stable. Well-educated people from other parts of the country and from around the world want to raise their families in this area because of the schools.”  

While a stable job market and well-educated, diverse population point the way to continued economic success, factors such as transportation woes, an aging population and a lack of affordable housing will also affect the real estate market in the coming decade.  

Proximity to D.C. Seen as Boon to Local Economy, Real Estate Market

“Clearly, among the reasons this area does well compared to the rest of the country is the stability of the U.S. government,” says David Howell, managing broker of McEnearney Associates in McLean. “The only way things would be drastically affected would be if a dramatic shrinkage of the federal government occurred, which no one expects to happen.”

The Metropolitan Washington Council of Governments’ (COG) Fall 2007 “Growth Trends to 2030: Cooperative Forecasting in the Washington Region,” anticipates job growth throughout the region to increase by nearly 39 percent between 2005 and 2030. Job growth in Northern Virginia during this timeframe is expected to rise by 61 percent, far outpacing job growth in the Maryland suburbs (38 percent) and Washington, D.C. (18 percent).

“We still have good job growth in this area, except at the moment for fields related to real estate and construction,” says McClain. We have seen a slight slowdown in job growth this year due to the national economy and moderation of federal procurement spending. But we still grew at a rate of 35,000 jobs in the past 12 months. Our long-term average in Northern Virginia is about 45,000 new jobs per year.”

COG expects household growth, fueled by job growth, to increase by more than 657,000 new households regionally between 2005 and 2030, with the largest growth in Fairfax, Montgomery and Loudoun counties, along with the Washington, D.C..

Population growth in the region is expected by COG to increase steadily from 2005 to 2030 at a rate of approximately 64,000 people per year. Most of this growth is expected to be in Fairfax, Loudoun, Montgomery and Prince William counties. The City of Alexandria and Arlington County are expected to see a population increase of 26 and 22 percent during this 25-year period.

Factors that will keep population growth strong include the long-term strength of the regional economy, high rates of migration to the area from other parts of the U.S. and foreign immigration. The number of people ages 65 and older is expected to more than double between 2005 and 2030, but the number of children in the area will also increase by about 30 percent.

Northern Virginia also has a highly educated population that increases the stability of the local economy, since there is a strong correlation between education and income. According to the Census Bureau, more than 60 percent of adults older than 25 in Arlington County have a bachelor’s degree or higher, along with approximately 55 percent of Fairfax County adults, 47 percent of Loudoun County adults and 32 percent of Prince William County adults.

This educated workforce is one reason why Northern Virginia is anticipated to lead the region in job creation for the next two decades, as it has in recent decades.

“Northern Virginia has been a boom town since I got started in this business in 1956,” says Dewberry. “Of course there have been real estate slumps before, and it’s taken two or three years to recover, especially when interest rates have been high. Before the 1950s, the Maryland suburbs were actually growing faster, but after a couple of more bridges were built, a growth spurt started in Fairfax County.”

Dewberry says that during the Cold War, government spending increased significantly, particularly for contractors who needed to be near the Pentagon, which has meant continued job growth for our region.

“Every few years sales slow a bit because of tight money, but right now the problems we are seeing came from a loose credit problem,” says Dewberry. “The financial industry packaged and sold these loans and led investors and a lot of buyers down the primrose path. Almost anyone could buy a house. It will take several years to work through this market, and I think we are maybe halfway through now.”

Dewberry believes growth will return in all parts of Northern Virginia.

“We are in a changed environment, so growth will be much slower to return to the outer suburbs,” says Dewberry. “The housing market is mixed, with close-in locations with fewer transportation problems doing better than areas farther away from the city.”

Transportation Woes: The Downside of Progress  

Johnson says that resolving transportation problems is vital to the well-being of Northern Virginia.

 “The potential problem is that if we cannot attract businesses or keep them in this area because of transportation issues, this could cause trouble with housing values,” says Johnson. “Rail to Dulles will help, and there are other ideas that might help, but I think some in the General Assembly and other down state politicians do not understand the big picture. The economy of the entire state depends on Northern Virginia, and now we need help in funding our transportation infrastructure.”

 Howell agrees that transportation problems clearly affect the real estate market.

“We’re seeing some manifestations of this right now,” says Howell. “For instance, we’re seeing a sputtering rebound of home values, but this is primarily in areas closest to mass transit and major employment centers.”

 McClain says that the dynamics of where people live and work have changed because of transportation issues, gas prices and housing prices.

 “Housing prices are already stable in centrally located parts of this region, with prices even going up a bit inside the Beltway because of the costs associated with commuting,” says McClain. “A long-term trend will be that there is a bigger premium than ever on location.”

 Howell, frustrated with the lack of action on the part of the Virginia General Assembly to solve transportation problems in our region, says that new and sustainable long-term funding for transportation needs to be developed. In addition, he says higher density development is needed.

 High Density Affordable Housing on the Horizon

“More density has to happen, particularly around some of the Metro stations in Northern Virginia that are located near neighborhoods of single-family homes,” says Howell. “It defeats the purpose of Metro if you have to drive to get there. More density has to happen in order to get more of the intended benefits of public transportation.”

McClain anticipates a gradual change in zoning laws related to density during the next 15 years.

“Local governments will have to make changes to their zoning laws to allow for higher densities, because in order to make the economics work, builders are going to have fit more homes onto smaller amounts of land,” says McClain.

Dewberry sees economics and transportation issues leading to greater popularity in future years for condominiums and apartments, since these developments are generally less expensive, have higher density and are closer in to the city and to public transportation.

“Land costs are still high and higher density development is needed, so I think we will see more tear-downs of older houses, especially in the closer-in suburbs, to develop higher density projects,” says Dewberry.

Howell says that high density development is linked with affordable housing, which he considers one of the biggest challenges facing our area, particularly the problem of housing public employees in the area where they work.

“Land costs, even though they have come down a bit, are still very high in Northern Virginia, and so are construction costs, says Howell. “These two costs impact the ability of developers to provide affordable housing.”

McClain says that many families dealt with the lack of affordable housing in Northern Virginia by opting to move to West Virginia or to Pennsylvania where land – and therefore housing – is cheaper. But this trend has shifted because of rising transportation costs.

“There is actually a long-term shortage of housing in this area because there are 200,000 people working in the region who live in West Virginia or Pennsylvania who would rather live closer in,” says McClain. “Eventually, local governments will have to change to accommodate more density, and that’s how homes will become more affordable.”

In the future, McClain believes that homeownership may not be as pervasive as it is today. More people may have to rent because of economics and high gas prices, he noted.

“We may see a change in the average size of homes, especially those geared for workforce or middle income families,” says McClain. “For instance, families that now buy 2,500-square-foot homes may need to be in an 1800-square-foot home in future years. Builders may have to redesign the size of their homes in order to make them more affordable.”

McClain says that the norm for home prices in Northern Virginia is to increase in value an average of 6 percent each year. While that is clearly not the case in the current market, the expectation is that the local market will return to that norm in future years.

“In the long term, the Washington area, and particularly Northern Virginia, is still the best place to buy property,” says Howell. “Other places experienced a meteoric rise, and now they are falling faster. It’s just the nature of our market that the peaks and valleys are just not as dramatic here, even though, obviously, we are not completely recession proof.”