The real estate market continues to flatline throughout most of the country. But in Washington, D.C., housing prices are up a smidgen (0.3%) from the previous month. More importantly, year-over-year prices have risen by 1.3%, a continuation of a happy trend in which prices increased by 2.6% from the year before that. When comparing housing markets in America’s big cities, D.C. appears to be having the strongest and steadiest recovery. But why? What’s making D.C.’s housing market work while others flail? Here are four explanations.
- Tight inventory. The Washington D.C. metropolitan area, which as a real estate market includes nearby counties in Virginia and Maryland, never experienced the overbuilding that cities like Miami or Las Vegas did. As a result, when the bust hit in 2006, there wasn’t that much excess inventory in D.C. to soak up. In overbuilt cities, it’s clearly been a buyer’s market for quite some time. But that isn’t the case in D.C. According to a report by the analytics firm Metrostudy, resale inventory in the D.C. area has tightened from 11 months of existing supply in 2008 to just 4.7 months of existing supply this past September. Six months of supply is generally considered a “balanced” market. Anything lower than that is said to give our power to homesellers — which is exactly the situation in D.C. today.
- Gentrification. With little new land to build on, D.C. developers are taking over existing multifamily properties — industry jargon for “apartment buildings” — and gussying them up for wealthier renters. This is a strategy that works only when tenants are able and willing to pay rising rents. According to a recent article in City Paper, one developer has been buying up buildings in the neighborhoods of Adams Morgan and Columbia Heights. The story notes that Urban Investment Partners has about $100 million to spend in the D.C. market, which means that at current prices it could buy another couple dozen buildings in addition to the portfolio it already owns.
- Lack of foreclosures. In many metro markets, a wave of foreclosures hitting the market has caused downward pressure on housing prices. In contrast, a D.C. foreclosure prevention act — passed in 2010 and updated this summer — has slowed the timeline in favor of distressed homeowners. Whether the intervention has bought a troubled market segment valuable time to recover, or whether it has simply delayed the inevitable, remains to be seen.
- Jobs. While Washington, D.C., proper has a higher unemployment rate than the national average, that rate fell as more jobs were added in November, according to The Wall Street Journal. What’s more, many of D.C.’s suburbs in Virginia and Maryland have among the nation’s lowest unemployment rates, and a lot of the jobs in the D.C. area are good ones. By one estimate, one out of every eight D.C. workers is tied to the federal government — and even though their cost-of-living raises were canceled this year, wage growth of 1.3% kept pace with the private sector, reports USA Today. More importantly, those jobs are highly paid (an average of $75,296) and with good benefits — just the kind of financials that mortgage lenders like.
Sadly, the four factors that make D.C. so special aren’t necessarily easy to replicate. For instance, it will take time for excess empty housing inventory to be filled with residents in overbuilt cities such as Las Vegas. On the other hand, when metro areas such as Atlanta (which has undergone a 12% drop in housing prices year-over-year) wonder what recovery looks like, they at least have a beacon: a shining city on a hill, with not that many new homes for sale.