Kevin Ogorzalek recently bought a condo in Pleasant Plains after years… (Linda Davidson/THE WASHINGTON…)
Paying $700 a month plus utilities for a three-way share in Mount Pleasant might seem too good to give up to the average District renter. Not Kevin Ogorzalek.
Living in that apartment for the past five years was indeed a money saver for the 29-year-old Chicago native, but every dollar — $30,000 to be exact — was tucked away with the intention of one day buying a home. And Ogorzalek did just that last month, closing on a two-bedroom, two-bathroom condominium at 2910 Georgia Ave. NW in Pleasant Plains.
The $350,000 unit, near Howard University, offers sweeping views of the Basilica of the National Shrine of the Immaculate Conception and the Washington Monument. Ogorzalek, a program officer for World Wildlife Fund, was seduced by the location, but drawn into the new four-story building by the value.
“With the location, I could rent it if I needed to . . . move outside of D.C. and not take a bath on the mortgage. That really helped put my mind at easy about the purchase,” he said. “Plus the mortgage rate was pretty sweet.”
Ogorzalek is part of what some analysts and real estate professionals see as the beginning of the reversal in the trend toward renting that defined Washington’s housing market during the downturn. Record low mortgage rates and stable housing prices are enticing more young professionals to buy in the area, but is it really the best time?
A new analysis by research firm Capital Economics this week found that U.S. median mortgage payments have reached the same price as median rental payments.
In the Washington area, rents are going up, climbing 3.7 percent for the 12 months ending September and averaging $1,708 a month in 2011, according to Alexandria research firm Delta Associates. Local landlords have raised rents an average 3.7 percent a year since 2006. With low vacancy and limited supply, landlords will continue to have the upper hand until new projects are delivered in the next two years.
Meanwhile, condominiums saw a 3.3 percent decline in prices for new condos and a 3.9 percent decrease for existing units, according to Delta Associates. Area prices for single-family homes rose 2.4 percent, to $330,000, according to Real Estate Business Intelligence, a subsidiary of the local multiple listing service.
For many young professionals, buying a first home is part of the American dream. But that dream now has to factor in a number of other moving parts about whether it will pay off as an investment.
Mortgage rates on the average 30-year loan fell below 4 percent this month for the first time ever, which makes buying more attractive. But lawmakers looking to reduce the nation’s deficit are revisiting an idea to modify mortgage interest tax deductions, which could deliver a substantial blow to homeowners’ pocketbooks. Meanwhile, the outlook for improvement in the local housing market remains unclear. Economic indicators suggest that the recovery is limping along, and some economists warn of a dreaded “double dip” recession.
Moody’s Analytics considers houses in the Washington area still expensive relative to renting. The firm pegged Washington’s rent ratio — the sale price of a house divided by the annual cost of renting an equivalent property — at 16.7 for the second quarter, compared to a long-run average of 13. A ratio below 15 typically means owning is cheaper than renting.
“My guess is when you go to some of these areas where prices have really collapsed, like the outlying suburbs, you’re probably seeing ratios as low as 12,” said Dean Baker, co-director of the Center for Economic and Policy Research in the District.
But, he said, “anyone expecting values to return back to their 2005 or 2006 peak . . . we have a long time to wait before we get to that. House prices will more or less rise in step with inflation.”
The case for buying
Homeownership took a hit in the wake of the housing crisis, but the foundation remains, as illustrated by the moderate rebound in purchases. Pending sales of single-family homes in the Washington area were up 12.4 percent last month compared to the previous year and 11.7 percent ahead of the five year average, according to Real Estate Business Intelligence.
First-time home buyers in the District are eligible for tax credits if they purchase by the end of the year. Maryland has an ongoing tax credit for home buyers. Virginia does not offer a similar tax credit.
Lawmakers are considering increasing down payment requirements, which would make buying more difficult. For now, however, there are still incentives and programs to help property virgins.
At a recent housing fair in Ballston, Lyndsey McFail, 24, was surprised to learn she could make up to $120,000 a year and still qualify for the Virginia Housing Development Authority’s FHA Plus home loan for first-time buyers. Borrowers can put down as little as 1 percent of the sales price.