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Washington DC Bubble Redux


The thread that I started two years ago on Washington DC sparked the most heated — and most active — debate of any topic to date. Though the comments have slowed down recently, the “Washington DC Bubble?” thread still boasts 1,188 comments.

One long-time reader, Bubba, asked earlier today whether I had any thoughts on the current state of the market. Here’s what I posted on the existing Washington thread (and if you want to throw in your two cents, do so in the original thread. Let’s see if we can crack 1,500 comments):

Bubba,

I saw your comment, and I’m happy to offer my opinion: Washington is still ridiculously overpriced. If you’ve followed this thread, you that it started way back with my impressions after returning to Washington a couple of years ago, and seeing that the house I sold between Old Town Alexandria and Mount Vernon for roughly $228,000 in 1998 was just six years later worth roughly $600,000 to $700,000 (!). A 2,700-square-foot house with no basement, a backyard that flooded when it rained, aluminum siding and in a mediocre school district.

I expressed shock then, and expressed my view that this was a bubble that couldn’t be sustained — the income needed to support a mortgage on a starter house like this was increasingly out of reach for many Washingtonians. There was no way it could go higher, and there were a lot of reasons why it would go lower.

If you’ve followed this blog, then you know that I still follow the D.C./Northern Virginia market via another blog called Northern Virginia Housing Bubble, and see that in exurbs like Centreville, Clifton and Triangle, asking prices are in freefall — down 30% to 40% from the peak. But my friends still there keep insisting that the “inside the Beltway” areas are insulated.

Har. I typed in my old zip code at Realtor.com and came up with a listing for the house below…

http://homes.realtor.com/search/listingdetail.aspx?zp=22308&typ=7&lid=1088792630&fhv=1

I know exactly where this house is: It’s in a neighborhood called Stratford Landing, right off the George Washington Parkway as you approach the Mount Vernon Estate. It’s on the market for $699,000, and it’s about the same size as my old house (it’s less than a mile from my former house). No basement (the water table is too high), same school district. I’m sorry, but having grown accustomed to the housing market here in Atlanta, I wouldn’t pay more than $325,000 for that house — tops.

In a comparable neighborhood in Atlanta, that house wouldn't fetch more than $260,000. And don't tell me that salaries in Washington are on average 2x to 3x higher than in Atlanta, because they aren't. Sure, there are well-paid lobbyists and executives, but there are a lot of well-paid executives in Atlanta -- probably more (HQs for Coca-Cola, Delta, UPS, Home Depot, Georgia-Pacific, Sun Trust, Rubbermaid Newell, Arby's, Rayovac, Intercontinental Hotels, Checkfree, Cox Cable, and hundreds of software firms).

The REST of Washington is populated by journalists, federal employees, and employees at all of the think tanks and non-profit organizations that make between $65,000 and $110,000. Both spouses have to work to afford a home now. I think the market was propped up by speculators, exotic subprime, "Alt A" and "Option ARM" mortgages that will reset higher -- much higher -- and leave the owners unable to meet their mortgage.

This is not the makings of a healthy housing market.


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