Washington, DC Metro Area Housing Report

Over the past 5 years the Washington, DC metropolitan area has experienced price appreciation of 107% according to the 3Q OFHEO Report. One year price appreciation has been a very high 21%. It is ranked 33 out of 265 metropolitan areas in terms of highest 1 year price appreciation.

The huge price appreciation has been the result of a multiple factors; historically low interest rates ( IO / ARMs, negative armortization ) , loose lending standards, strong job growth, tax law changes, people being burned in the stock market, and of course speculation.

Many of the factors fueling the housing boom are coming to an end. Interest rates are rising, lending standards are slowly increasing, job growth in the DC area will continue albeit at a slower pace, and the speculation is ending. The speculators are bailing.

The peak in Washington, DC was probably in August of 2005; 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 properties 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." Seasonally adjusted monthly home sales have fallen.

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 clearly over.

So what happens next? Over the next 3 years housing prices are likely to fall in the Washington area by 20 - 25% in real dollars ( inflation adjusted ). The Washington, DC metro area is thus a bubble market.