How It Will Burst By Nicholas F. Benton July 28, 2005
Whether it’s the political cartoon in the Washington Business Journal showing a bottle of “Mr. Housing Bubble” with the slogan, “Who Wants to Take a Bath?,” a panel of experts assembled at the National Press Club to discuss it, or any one of the many articles appearing in area newspapers, including the Page One feature in the Washington Post Sunday that made specific references to Falls Church, everybody’s showing signs of nerves over the region’s housing value bubble. Just looking at the real estate ads in this newspaper shows a market with prices that are vastly out of proportion with actual value, and many are worrying that we’re on the brink of a “dot.com”-style blow out.
Experts say that there are not a lot of solid or reliable warning signs about when the pin will actually penetrate the balloon. One indicator, however, is how long a house remains on the market after the “For Sale” sign first shows up in the front yard. Is that space of time shortening, remaining unchanged, or lengthening? If it’s lengthening, then you have a clue that the market may be cooling off, and that’s just the preliminary stage for something that may soon become much more dramatic. In the context of the truism which says, “The bigger they are, the harder they fall,” the size of the disproportion between price and value in the Northern Virginia housing market will assure that when the bubble bursts, it will not lead to any “soft landing.” Go back into the News-Press’ archives to as recently as 2000 to see how outlandish asking prices, and therefore assessed real estate values, are
Some experts suggest that the bubble won’t burst here because the federal government is such a reliable institution. However, the Base Realignment and Closing report is a government document that has mandated a significant relocation of government functions out of this region, and the more major government contractors are asked to hire new legions of qualified employees, the more they will look to lower the salaries they’ll have to pay by relocating to areas of the country where the cost of living, including the cost of housing, is less. Even our esteemed Dr. Stephen Fuller, with all his optimism about regional growth trends in the future, is smart enough to include significant caveats in his remarks, especially about an anticipated economic downturn by the end of this decade that could rival 1929.
Now, Federal Reserve chief Alan Greenspan warned last week about the bank mortgage practices that offer interest-only and no-down-payment options and are willing to lend far more than homeowners, even in a two-income homes, can afford to pay. Have we learned nothing from the commercial lending scandals of the 1980s? The storm clouds are on the horizon and the danger is not just to individual homeowners, but to local jurisdictions all over Northern Virginia who depend for so much of their revenue on residential real estate taxes based on assessments that inflate with over-inflated prices.
Market Data 
Markets 
AI
