Some must hope softening real estate market is temporary

June 18, 2006|by TIM ROWLAND

When the price of gas approaches $3 a gallon, you expect it to affect the sale of SUVs. In Washington County, it may have a larger impact on home prices.

Trolling local real estate ads, the words "just reduced" pop up with a frequency that would have been unimaginable six months ago. Realtors report a softening market, and houses that are taking longer to sell.

It might be tempting to assign this phenomenon to a logical deflation in the housing bubble of the past several years, which saw an unsustainable, double-digit rise in prices.

Indeed, tempted by sky-high prices, more sellers tossed their homes on the market hoping to strike gold, thus inflating inventories. Some may not have been all that keen on selling - they just listed for an astronomical figure and if they got it fine, if not, fine.


The updraft was fueled by city investors, who bought up inventory with the idea of renting it for a couple of years before selling and cashing in on rising values.

But probably the most significant buyers were metropolitan residents who headed west in "drive until you qualify" mode. And what they wished to qualify for were big, impressive homes on an ample piece of ground - mere affordability pipe dreams near the cities.

The deal with the devil was the commute to the urban jobs that would permit them to make payments, and in many cases, creative financing tools such as interest-only loans.

Those employing interest-only loans are usually walking a fine line. A buyer who goes the interest-only route shoehorns into a house payment that probably doesn't leave a lot of free-cash flow to spare.

It can work, on the condition that the status quo is maintained and nothing goes wrong.

Enter spiraling energy prices. This can be a double blow because of the commute and because these houses a huge and cost a lot to heat and cool. Another dart will hit in 2008 when electricity costs are deregulated.

If the house is appreciating in value, this isn't terrible. You can always sell, and pocket a little profit for a down payment on something smaller and more affordable.

But if the value decreases, you are basically locked into that home - you cannot easily sell, because you would have to make up the difference between what you paid and what the new buyer would pay.

What could cause the value to decrease? Would-be Washington County residents now living in Montgomery County who decide against moving here because of the increased cost of a daily commute. The recent stock market tumble doesn't help either, because people don't like to embark on new adventures in new lands when there are questions about their financial futures.

Fortunately for the interest-only set, there are a couple of factors either in-place or on the horizon which could soften the blow. One is the Washington County Commissioners and their newfound surliness toward new housing developments.

This may just be temporary, election-year religion, but one thing those with an interest in maintaining home values don't want to see is a flood of new houses on the market.

But more important is what happens in Frederick County, where an astonishing 40 percent of residents commute out-of-county.

This indicates a well-qualified work force, most of which would probably be happy if they could have equal work with a shorter drive.

Businesses notice this. They know if they themselves move outward to Frederick County they will be able enjoy cheaper property and still be able to lure plenty of good help. And according to a recent Washington Post report, that's just what's happening.

If a significant number of new jobs open up in Frederick, the commuting cycle begins all over again, one county removed - which means that Washington County becomes the new Frederick County, with its thunderous herds of commuters, for whom a 25-mile drive to the east barely registers as a commute at all.

There's a saying in Texas, "God, if you give us just one more fortune, we promise not to squander it this time."

It alludes, of course, to the fact that every time there's a boom in oil prices, there's an inclination to think the good times will roll forever. In fact, if the oil patch doesn't go bust sometime in the next few years, it will be the first time in history.

It's reasonable to think that energy prices will at some point revert to form and settle back into a more commuter-friendly range. Some say it's different this time and that because of the dwindling supply of a finite resource, high energy costs are a fact of life, because one day we're going to run out.

I happen to think we will see a few more boom/bust cycles before that happens. Ironically though, it's the commuters with the greatest interest in seeing the price of fuel come down who are most helping create the demand that causes the price to go up.

Either way, spending one-sixth of your day getting to and from work is neither an ideal nor natural situation. The urgency of bringing jobs here - or at least to Frederick -instead of sending workers there should by now be clear to everyone - not just those with interest-only loans.

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