Is Washington DC real estate poised for a rebound?

Posted by: Prashant Gopal on August 6, 2009

washington monument.jpgDemand for homes in the Washington DC metro is now outpacing supply, The Washington Post’s Elizabeth Razzi reported today. The inventory of unsold homes in June dropped to a healthy 5.1 months supply, according to a report from the local multiple listing service and Delta Associates. This is the amount of time need to sell the homes on the market at the current sales pace. Experts say a market in balance has about 6 months supply. Anything below that is considered a buyer’s market.

That doesn’t mean that sellers can raise their prices yet, but they’re offering less generous incentives, Razzi says. Home prices fell 13.2 percent in the second quarter compared to the previous year.

The metro area includes the battered Prince William County and other distant suburbs that are in terrible shape. I would guess the supply in DC and its inner suburbs such as Alexandria, Va. and Arlington, Va. are much tighter. And home prices there are likely to rise sooner.

DC, which has plentiful federal government and defense contractor jobs, is one of the country’s few economic bright spots and its housing market is a good candidate for an early rebound. Am I being too optimistic here?

Reader Comments

Mike

August 6, 2009 1:24 PM

Unlikely anytime soon.
1) Price/income ratios are still very high for the region, with the exception of outersuburbs (Manassass, Loudoun).
2) Price/rent ratios are same as #1
3) Looming recasting of pay-option ARMs, Alt-A's, etc start ramping up soon, peaking in 2010-2011 (which are very prevalent inside the beltway).
4) Apprent drop in months supply is due to dramatic drops out in Manassas/Loudon and corresponding sales increase. Also, due to spring buying season. Those areas may be bottoming, but not inside beltway.

Looking at the county-wide data, there is a steep price gradient in DC that has never existed before. The ratio of prices moving from county to county radially away from the district was VERY steady for decades, until 2008, and is now MUCH MUCH higher than ever before. It's likely that the ratio will slowly revert back to where it was before (ie inner prices slowly slide).

Alex

August 6, 2009 5:06 PM

Likely soon.

#1 Federal spending assured to increase, specifically the stimulus, health care, energy and education.

#2 Massive infrastructure projects funded and running full steam ahead: Silver Line to Dulles Airport, Beltway HOT Lanes, BRAC construction at Belvoir, DHS HQ.

#3 Low unemployment, rising wages, and more jobs available per capita than any large metro area.

#4 Surprise...new home construction. Inventory of homes in Northern Virginia back to Summer 2005 levels. Builders are reporting new home contracts at four year highs in June.

Some perspective from Knight Kipplinger from Kipplnger Magazine:

But while stimulus money will be spread all over the country, managing it will fall to Washington, said Knight Kiplinger, editor in chief of Kiplinger's Personal Finance and a self-described "voracious student of the Washington economy." He compares the expansion possibilities to Washington's growth around the Civil War, World War I, the Depression and the Great Society, saying that even when other metro areas' economies struggle, Washington's generally grows.

"It's relentless," he said.

John

August 6, 2009 6:01 PM

I'm working in the Manassas area and homes that are in good condition in the 200K range seem to move fast when they are priced right.

I talked with a buyer in Leesburg today, he has put in offers for over 10 townhouses. He is bidding up the prices but so is everyone else. He can't seem to buy because of so many other properties. These are townhouses in the 150K range. If anybody has insight into the Leesburg market, please post a response.

John
www.manassashousedeals.com

Talia

August 7, 2009 11:14 AM

The idea that pay option arm/Alt A is (very prevalent inside the beltway) is false. The New York Fed used to publish a county by county map of option arm/ alt A, and it showed Arlington & Alexandria had one of the lowest rates in the country - far lower than the rates found in Fairfax, Loudoun & PWC.

Also months of supply was very high outside the beltway, but inside the beltway it was always pretty good. Recently, those outer areas are now coming back into alignment with the inner areas, albeit at much lower price levels.

The discrepancy between inside/outside the beltway prices is likely a function of income. Cencus data shows that income of Arlington & Alexandria residents grew much faster than residents of Fairfax, Loudoun & PWC.

I dont think that the prices are going to "rebound" as much as they are to bounce along the bottom for quite some time. Moreover, a slight further declines is certainly possible. However the "cliff diving" that was seen in this area (especially outside the beltway) for the last few years is over.

Austin

August 7, 2009 11:29 AM

"It's likely that the ratio will slowly revert back to where it was before (ie inner prices slowly slide)."

I agree about the gradient, but judging from the feeding frenzy I am seeing outside the beltway, the more likely resolution is the outer county prices slowly rise.

J.P.

August 7, 2009 12:40 PM

I hate it when people say that the real estate market is fine here in DC because the government and contractors are always hiring. I’m not debating that the region is still creating well-paying jobs… but that argument ignores a key component of the equation: to buy one of the areas overpriced homes right now, you need good credit and sizable down payment. If you’ve moved here from any other region of the country and were a homeowner, you probably lack one or the other right now.
Using myself as an example: my wife and I recently came to DC from the midwest, where we owned a home that was underwater (stupidly bought in 2006). We sold our home and moved here… and paid $30K out of pocket, which, when combined with our $20K downpayment on the place, meant we were out $50K on the deal. We still have good credit, but that transaction cleaned out our savings. Yes, we’ve got good jobs now, but we’ve got rent and young kids in daycare, so its going to take a while for us to save up any sort of realistic down-payment (assuming we’re ready to jump back into the housing market in the near future).
And we are among the lucky ones because our place only lost 25 percent of its value (and didn’t cost that much, relatively speaking). People coming here from California, Florida, and the likes will likely be losing a heck of a lot more cash than we did… or will be showing up with a foreclosure on their credit reports. I just fail to see how someone who’s got crappy credit or just lost $100K on the sale of a house to move here is going to turn around and buy a $750K townhouse in the District. Jobs here pay well, but not that well.

Mike L

August 10, 2009 5:54 PM

Look at the population dynamics. A massive influx of people into the DC suburbs sent their prices skyrocketing. These prices definitely overshot their true value and had to come back down.

But there is no denying that the DC population area overall is going to be increasing. Increasing population + more money into the area + fixed amount of land inside the beltway means in the long run (and maybe medium run) people close in will be fine.

Dan

August 11, 2009 2:27 AM

The bottom is already in, and prices have already started rising. Incomes in this area are among the highest in the nation and can support high prices.

- 2008 buyer in Rockville, MD

Dan

August 11, 2009 2:27 AM

The bottom is already in, and prices have already started rising. Incomes in this area are among the highest in the nation and can support high prices.

- 2008 buyer in Rockville, MD

Rob

August 17, 2009 6:05 PM

I have no idea, but I do know the bottom has been called every day for the past 3 years. It hasnt happened yet.

Tiff

August 18, 2009 12:18 PM

When I read something like this, it makes me want to buy. I'm currently looking to buy. Single 27 y/o female. Working full time and part time student. I feel like there is a window in which first time home buyers previously priced out the DC metro housing market can now enter. I am super nervous but would hate to miss the opportunity and then two years from now having wasted money on rent, be sorry I hesitated. Does anyone have any advice? I don't know anyone I trust to give educated and fact/numbers based advice.
BTW. I make just 50k but have no debt, kids,car note, or major expenses.

SJ

August 26, 2009 11:37 AM

Case shiller just posted its 3rd consecutive increase for the DC area. Even if you look at the seasonally adjusted index, it improved for 3 months straight.

Interesting in that this series does not "blip" or "dead cat bounce". It was up every month 1999-mid 2006, and down Mid 2006-Mid 2009. So does 3 positive months (even seasonally adjusted) portend that the bottom is in. It looks that way, unless you believe "its different this time"

SJ

August 26, 2009 11:37 AM

Case shiller just posted its 3rd consecutive increase for the DC area. Even if you look at the seasonally adjusted index, it improved for 3 months straight.

Interesting in that this series does not "blip" or "dead cat bounce". It was up every month 1999-mid 2006, and down Mid 2006-Mid 2009. So does 3 positive months (even seasonally adjusted) portend that the bottom is in. It looks that way, unless you believe "its different this time"

All real estate is over priced

February 8, 2010 8:17 PM

All these comments are silly. The bottom line is that the overall economy is MASSIVELY in debt, the federal government, banks, corporations, and individuals. We are all WAY over our heads. The amount of debt the federal government has gotten the country in is unable to be repaid, they have literally enslaved several generations. When the Chinese and Japanese finally figure out we'll never repay it, all hell will break loose. How many jobs DC creates will be meaningless, the whole country is screwed, and it will play out in DC too. It may not be as harsh as in Vegas, Detroit or other markets, but DC will get creamed to some degree too. We all will get creamed thanks to a Congress that for decades has been insatiable. Deflation is the only result when you have massive over leveraging. It is literally impossible for prices to stay propped up with as much unrepayable debt sloshing around the world as we have. Sorry everyone.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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