Will DC Market “Double Dip”?

by Tony Hain on January 26, 2011

Just as the general economy begins to show signs of recovery, the real estate news of the week is that home prices declined in 19 of the top 20 metro areas from October to November, including Washington which declined .1 percent according to the Case-Shiller index.  However, Washington home prices were up 3.5% from a year earlier–the largest increase of any city in the index and one of only four cities to show an annual increase.  The Washington Post has a good summary of the latest news so we will focus on putting the information into context.

While not good news for the housing market, it is not unexpected.  The federal housing tax credit designed to stimulate the market boosted demand in the fall of 09 and spring of 10, and prices rose as a result.  When the credit expired, most people who were in the market had already purchased so demand dissipated over the summer and fall and the data is showing that prices retreated a bit.  In Washington, this trend varies greatly neighborhood by neighborhood and among different price ranges…it is not a uniform trend.

Buyers continue to be in a good position with favorable affordability indexes.  Trulia just reported that it’s better to buy than rent in D.C. and international investors have yet again named DC as the best city in the world for real estate investment.

Successful sellers are staging homes to perfection and pricing competitively, but both camps should recognize that the market can change quickly in DC and an understanding of the current environment is important to get the best deal regardless of which side of the transaction you are on.

While these numbers indicate a slight month over month decline in Washington prices,  rents are rising, the local economy is still stable, and new housing construction is minimal.  These are all factors that are unique to Washington and could lead to the resumption of price increases in DC even if other parts of the country decline.  Just yesterday, the Washington Business Journal reported that two studies show consumer confidence in January is at its highest level in eight months or three years, depending upon the study.

What does all this mean?  Nationally, many experts are predicting a further correction over the next few months.  Locally, we’ve been defying the national stories for months.  As we shake off the cold and head into spring, there will be a new pool of buyers who were not in the market during the 09-10 tax credits.  Their confidence in long-term home ownership, along with the number of homes on the market, will ultimately determine home values, but it is certain to vary by city and even neighborhood.  All real estate is local.

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