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What's ahead for Loudoun?
Residential real estate
Loudoun is one of the strongest residential markets in the country and it will only grow stronger. All elements are in place for a rebound in sales volume and prices. We have far more buyers than sellers and well-taken-care-of and appropriately priced properties are flying off the market.
Two problems remain, however: Prices are flat and few people want to sell. How can this be? We all know what happened to our prices; overbuilding and speculation caused a bubble, and that bubble popped. Our prices are now below where they should be, and conservative appraisals are restricting increases. Without price increases, the only sellers are those who must do so. Consequently, the inventory of available homes is low. This problem will persist until prices once again reflect the market and begin to increase.
Let's make some comparisons. My market surveys of the Route 7 corridor, Leesburg, Ashburn, Potomac Falls and Sterling, showed a 16 percent increase in prices in September 2009, as compared to September 2008. This sounds great, except that what it really reflects is a greater percentage of higher priced homes being sold.
I see two explanations for this. First, the higher-priced home market is starting to loosen up, and second, the number of lower-priced homes are drying up. Our number of transactions, comparing September 2009 to September 2008, decreased 16 percent and I expect this trend to continue through the end of the year.
Commercial
Loudoun's commercial real estate market is in trouble. We have too much inventory in retail, office and other categories. Until we stop building more inventory, we will continue to see commercial vacancies increase and values sharply decline. This will continue for at least another year and a half.
The rest of the story
If real estate values fall sharply, what else will this affect? Taxes. The majority of Loudoun's government income derives from real estate taxes. When home values fall, rates must go up so the county can continue to operate within budget. Not only does the tax rate rise annually, but so does the county budget. Over the next couple of years our taxes, not just our tax rate, but also the amount of our total property taxes, will increase dramatically. This will effect our personal finances, and if they rise high enough, will begin to alter the values of our property.
When someone purchases a home, the single most important number is PITI (Principle, Interest, Taxes and Insurance). This determines how much you can spend monthly for a home. Simply put, if interest rates or taxes rise sharply, it dramatically reduces the amount you can borrow for a home purchase. In some areas, such as New York, high taxes have traditionally held back home prices. This could become a problem here as well.
In the coming years, it will become a struggle to balance the very real needs of our schools, police and other critical services with our ability to pay for them. As you can see, the issue of declining property values influences not only the owner of the property, but also the ability of our government to provide services to all of us.
Jim Stakem is the broker/owner of Re/Max Select Properties in Ashburn. He can be reached at 703-547-0650 or jim@stakem.us.
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