Steve Fuller is an economist with George Mason University. He spoke with the Times-Mirror about the housing contraction in October and the outlook for coming months
Housing contracts were down 5 percent in Fairfax County in October as opposed to 10.7 percent in Loudoun County. Why was Loudoun County hit more than twice as hard?
It’s all temporary, to begin with. What happened in October is that buyers slowed down or deferred their purchases while sellers listed at a normal rate. The supply went up.
All of that surplus in October, I’ve been told, disappeared in November. There was an imbalance of demand vs. supply; demand was tied down to a large degree to the lack of confidence among consumers. Consumer confidence by almost every indicator went down October, nationally, but there was a big bounce in November.
Prices in October were still up 10 percent over October 2012 in Northern Virginia. That’s 48 out of 52 months with positive growth. There’s variation in market that have to do primarily with price differentials. Loudoun County has a more expensive housing market, and generally speaking houses in Loudoun County are newer and bigger than houses in closer-in counties.
The April-to-September period saw 13.2-percent growth over the same period last year. Given the robust rate of increased housing activity up to the 16-day shutdown, should we expect resumption of normal forward momentum in November and December?
I don’t know if it’ll look normal. The market has changed. November and December generally aren’t hot months anyway. There’s great pressure placed on Realtors by their companies to close deals, registering to mark a great year. They’re looking at sales between 20 and 25 percent higher than last year.
They’re doing well and they’re trying to lock it in. I don’t know that November and December will be back on their annual averages, but they will be much better than October. All indications are that the economy bounced back much faster than people expected. Next year will be much stronger, with double-digit increases.
What would be a healthy rate of growth for November?
Anything higher than October will be seen as good news. How much better? I pay attention to sales data. I look at value and number of units sold relative to what’s on the market. I think we’ll see improvements in all normal metrics: days on market, number of sales per units listed. All those things are looking still very good.
If the rate of growth is below this number, could the lag be attributable to the shutdown?
No. The bigger factor in the economy, much more than the shutdown, is the decrease in federal spending due to sequester. Sequester cuts are cumulative, and it’s having an effect on the job market, on the salaries and kinds of jobs being produced.
That showed up over the summer when we had a new fiscal year without a budget and cutbacks in federal spending for Fiscal Year 2014. We’re well into Fiscal Year 2014 now, and this contraction in housing was the shutdown on top of what’s already showing up. There’s also uncertainty relative to the federal budget.
Federal contractors are the predominant economic driver in Fairfax County, and federal contractor jobs have been declining for three years. Those kinds of jobs, contractor and professional business service jobs, were negative. Those are the highest-paying jobs, and those workers buy houses.
We’ve lost 8,000 of those kinds of jobs this year and 13,000 in the last two years. Those are the two sources of workers who make most money, representing a third of all jobs in the Washington area, and they’re declining. The sequester resulted in federal contracts not being extended. We’re seeing some of the consequences.
New listings were down only 6.7 percent in October. Why did new listings decrease at a slower rate than housing contracts?
The kinds of houses bought today by Loudoun County people are move-ups, and if they decide they are not going to move up because they aren’t certain about the economic situation, they’ll move to sell.
The days the average house spent on the market actually decreased between October 2012 and October 2013, falling from 25 to 20. How does this square with the overall housing contraction experienced in October?
It’s proof that there’s still a strong housing market and buyers who want to buy snapping up what’s available. Especially when there are fewer listings, they have competition. It’s quite common for them bid up and wind up paying more than the asking price. It’s a tight market, so a buyer who’s motivated hops on a house pretty quickly.
How does the high area inventory (up 5.9 percent from last year) bode for the overall health of the housing market?
That increase in inventory will disappear in November. It’s gone. There was a temporary increase in October, but still very tight inventory compared to what normal inventory is. The increase didn’t make inventory all that big, just bigger than September. And it’s gone now.
Does political intransigence in Washington and the potential for more crises represent a long-term threat to the regional housing economy?
If the dysfunction in Congress continues beyond the deadlines now in front of us, which is January and February for the budget and debt service, they will undercut the economy’s growth potential in 2014.
The economy is poised to explode, the housing market set to expand significantly next year and the year after, and it will not do that as long as there’s broad-based uncertainty tied to indecision and lack of budget certainty.
It’s easy to blame this on the Tea Party, but both sides have to compromise on both revenues and expenditures. Both agree that we need reduced spending, but don’t agree how to do it. Until they agree, we’re all held hostage. I wouldn’t blame one or the other, but their intransigence is a major factor. Neither will allow debt ceiling to be endangered again, but the budget is another matter.
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