Sunday, October 23, 2005

Washington, DC Area Update

The Washington, DC metro area has experienced rapid price appreciation of 26% over the past year and 101% over the past 5 years ( for period ending June 30, 2005, OFHEO.gov). In addition to the usual factors contributing to the housing boom the DC area has had strong job growth due to increased spending by the federal government.

However, the boom period is over. The housing market started stagnating a few months ago and is now experiencing very small price declines. Inventory has rapidly increased throughout the metropolitan area. According to this article by Reuters "After hitting a high in May, the number of contracts in Washington D.C. and its surrounding Virginia areas of Prince William, Loudoun, Fairfax and Arlington counties have fallen by about half, according to the Greater Capital Area Association of Realtors. Meanwhile, inventory of houses for sale has doubled and in some cases tripled, and homes are staying on the market 30 percent longer."

The high price preoperties are sitting longer. "Anything over $500,000, especially in the suburbs, is just sitting." said Gay Ruth Horney, of Long & Foster Real Estate Inc. in Maryland's Montgomery County, where inventory rose 5 percent and homes stayed on the market 7 percent longer than in September 2004. "Would-be landlords have discovered that they are not able to achieve rents high enough to cover their mortgages. she said."

Today, I went for a drive through the District of Columbia (DC) and also walked the streets. There were many houses available for sale. On the 1300 block of Taylor Steet NW there were three available houses for sale at 1307, 1301, and 1341.

The house on the right is located in the city proper in a alright neighborhood called Brightwood. The address of the house is located at 1444 Whittier Place NW. The MLS is DC5419971. It is a 3 br 2ba house located on .11 acres. The house is being offered at 650K. Will it sell in a reasonable amount of time? Nope.

Inventory is rapidly increasingly in the metropolitan area. In Fairfax County (western suburban county), SFH inventory went from 900 in March to 3300 in August (the latest month they have the data for).

Furthermore, according to DC20009Guy who has been tracking listing for sale via ZipRealty. Listings in the 20009 zipcode ( DC ) are up 159% and DC as a whole is up 68% since Sept. 7. That is incredible. DC2009Guy add "20009 includes Dupont Circle, parts of Adams-Morgan, U Street, and Logan Circle. These areas have seen incredible gentrification (and crazy appreciation) the last few years. For example, my partner and I recently looked at a $499,999 "loft" which was basically just an efficiency."

Due to the rapidly increasing inventory and the changing buyer mentality sellers have been forced to either reduce prices or wait longer for a sale. The market is seeing an increasing amount of "price reduced," "huge price reduction," "price reduced to sell," "25,000 reduction," "price reduced. Must sell," "way below market value", and "just reduced"

The housing market continues to weaken in the DC area. Inventory is surging. The boom is over.

14 comments:

  1. David, didn't realize your blog was focused on DC. In the Logan Circle area new condo buildings are sprouting up like wildflowers. Many of these are pre-sold of course but with so much inventory coming on the market and more of the existing inventory coming up for sale, interest rates rising, and most importantly a turn in psychology, it will be very interesting to see what happens here.

    I could easily see things going down 30% here, especially in condos.

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  2. I went for a drive on Georgia avenue Sunday morning, north from Silver Spring into Wheaton and back. We're talking 9:30 to 10:00 a.m.

    Traffic like at rush hour (except that rush hour is like parking). Absolutely obscene. For me, this makes housing in the area worth even less.

    But, I did see a house on Georgia Avenue itself (a six/seven lane, always-busy road) that had recently sold.

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  3. I would think the way this would work is as follows.

    The flippers can't sell at lower prices, since they bought at high prices and expect the sale to bring big income. But they can't hold out forever, either.

    The longer-term owners are looking to cash out now. They can take a lower price, and will be the first to snap.

    Next, the smart flippers, who realize it's better to get out with a loss than with a huge loss, will get out.

    By that time, the psychology will have totally changed. Pressure will be on the sellers, and the other flippers will start to break as they can't hold their houses at a loss anymore.

    This will take 3-4 years, at most. In the meantime, the Feds are going to slow spending and the jobs are going to start drying up. Crime will start to rise in some of these "rebounding" neighborhoods.

    A couple years ago, when there was a machete attack, followed by a gang shooting in Herndon, I read an interview where a 5-year TH owner said she would leave if crime got much worse.

    These newcomers have no loyalty to the area. I have seen people with a LOT of loyalty to the area forced to leave against their will because crime had gotten so bad (much worse than two incidents in a week). These newcomers will fly out much faster and much easier. Gentrifying an area doesn't always "work," and sometimes it's more complicated than just buying a house and putting in a new roof. Then, the bubble bursting could turn into a rout.

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  4. I'm a runner (and an economist) in the 20009 zip (Adams Morgan) and have definitely noticed an uptick in the number of "For Sale" signs around here. During a recent run through Glover Park, my running partner and I amused ourselves by trying to detect a block without at least one house or condo for sale. Many had two or three for sale. Ditto Logan Circle, Woodley Park, East Dupont. Only on yesterday's run through Tentleytown could I find quiet streets not littered with "For Sale" signs.

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  5. "Tentleytown could I find quiet streets not littered with "For Sale" signs."

    But I bet those streets had political signs for mayor. There are more of those then for sale signs.

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  6. I read your blog every day. Very informative and entertaining.

    I'd love to see more about how smart RE investors are diversifying or hedging against a RE bubble. I have property and over $70K cash on hand, and i'd love to learn more about how I can hedge against a housing crisis besides selling my rental property located near the MCI Center.

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  7. anon:

    thanks for the compliments. I will try and publish some information about how "how smart RE investors are diversifying or hedging against a RE bubble"

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  8. well we had an open house on sunday for a property in columbia heights listed at 799k and had about 100 through.

    btw, your post on 1668 oak st doesn't reflect whether or not any updates were done to the property. not that that usually justified everything, but something to note.

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  9. dcbroker,

    "well we had an open house on sunday for a property in columbia heights listed at 799k and had about 100 through."

    Lets see how many are actually interested.

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  10. yes we shall see.

    other note: for a buyer client we made a lowish offer on a condo selling for $432/ft in Columbia Heights. we came in at about $400. We got laughed away.

    I wanted to come in low for two reasons. 1) to get my client the best deal possible and 2) to test the waters a little bit. and the response was not very good (from the buyer's perspective).

    it will be very interesting to see how it all plays out.

    the economy is DC is still quite strong and interests rates are benign.

    the only things to have changed are that prices are higher and sentiment may be waning.

    thus more inventory.

    but i always was expecting more inventory and was shocked that there wasn't more. i'm an economist by training and the higher prices should have brought greater supply. it finally is. but since it overshoots in each direction the onslaught of inventory ought to be high....

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  11. While inventory has increased throughout Connecticut by 50% since the spring, prices have kept rising. This is the peak however. Stuff selling at ridiculous prices- when this correction comes it will be ugly. Connecticut real estate is in bubble territory kids.

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  12. I'm in downtown Silver Spring, and there doesn't seem to a parcel of land bigger than maybe four parking spaces that isn't being turned into condos. Frankly, I hope all the predictions for a deep and painful shakedown are right....

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  13. DCBROKER,

    "the economy is DC is still quite strong"

    Yes

    "and interests rates are benign."

    They may be benign, but they are rising.

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  14. gov workers will never leave the parasite class will grow

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