On the news, or in some article, you might hear how real estate prices have recovered. And, since the bubble burst back in 2007 and 2008, prices are clearly turning the corner. But the degree and speed of that recovery can vary substantially from one area to another. The reason is that, like politics, all real estate is local. There are many factors that can affect the demand for housing, and subsequently prices, and often times local factors, are the most influential. Things like the quality of schools, crime statistics, tax rates and the business environment can all combine to impact the value of housing across different geographic regions.
For example, the primary job creator in our area is essentially government, with Washington, D.C., at the epicenter of that industry. Plus, with all the lobbyists, lawyers and other high rollers that are attracted by the center of political power, the D.C. area is surrounded by lots of high-end housing. In fact, most of the country’s wealthiest counties encircle the District. The top three counties in the nation for median household income are Loudon, Fairfax and Howard. Other popular D.C. commuter counties are in the top 20, with Arlington at No. 5, Montgomery at No. 11 and Anne Arundel at No. 18.
But even though all these counties benefit from the financial halo effect of D.C., not all areas have witnessed the same amount of real estate price appreciation over the past several years. Case in point is Falls Church, Virginia and Annapolis, Maryland.
If you look at all the zip codes that use an Annapolis mailing address and all the zip codes with a Falls Church mailing address, the population of the two areas is approximately the same at around 100,000. Additionally, the number of homes sold over the past six years, and seasonal pattern for those sales, are almost identical. However, the annual changes in home values are very different.
At the end of 2009, the median sales price for a detached home in Falls Church was $429,000. In Annapolis, the price wasn’t much different at $420,500. Although the two cities started in the same place, median home prices were wildly different six years later. Currently, the median price in Falls Church is $625,000, an increase of 46 percent over 2009 levels. Conversely, the median price for Annapolis is now $440,000, an increase of only 5 percent.
Apparently, the affluent have decided that Virginia is a better deal than Maryland. Although other factors might have contributed to the jump in median home prices for a place like Falls Church, there’s no doubt that the tax policies implemented by the O’Malley administration are probably the primary culprit.
During the period that home prices in Falls Church dramatically outpaced Annapolis, headlines such as this were common in news and business journals – “How Maryland’s Tax Rates are Driving Jobs to Virginia,” “Marylanders move in droves to Virginia” and “D.C. and Virginia tax burdens relatively low, Maryland’s is high.” The top personal income tax rate in Maryland is almost 9 percent, compared to only 5.75 percent in Virginia. The corporate income tax rate in Maryland is 8.25 percent; in Virginia, it’s only 6 percent.
And on top of all that, you had the implementation of O’Malley’s widely publicized “millionaire’s tax.” If you were a well-heeled Washington lobbyist, or a corporate CEO, it was pretty much a no-brainer to relocate you and your business to Virginia, and that’s what many of them did. Some of the big bucks ready to buy million-dollar homes went to Falls Church instead of Annapolis, and large corporations like Northrop Grumman also moved their headquarters to Virginia, taking with them thousands of high-paying jobs.
The results are reflected in how home prices have changed in certain parts of the two states. But despite the tax policy blunders that inspired this exodus, there is still hope that some of these homebuyers will return to Maryland and the Annapolis area. Eventually, home prices in sought-after Virginia communities will rise to the point that more and more homebuyers will be priced out of the market. Over time, they’ll begin to recognize that places like Anne Arundel County are a good value when compared to their options in Loudoun or Fairfax County. Plus, as Amy Juras, a popular real estate agent in Anne Arundel County, has often said, “When you live in Fairfax County, the commute to and from Washington, D.C., means that you have to drive into the sun going both ways; the drive from Anne Arundel is a much more pleasant trip.”