The most recent Case-Shiller Home Price Index brought bad news for most major metropolitan areas in the U.S. For Washington, D.C., it showed a continuation of the market stability we’ve seen over the last two years.
The latest report was released on March 27, 2012 and contains home-price data through the end of January 2012. According to the data, 16 of the 20 metro areas tracked by the 20-city index saw a decrease in home prices, while only three cities experienced appreciation. (There was no data for Charlotte, North Carolina, which would have made a total of 20).
Here are the numbers from the latest S&P/Case-Shiller index. Washington, D.C. is marked in yellow.
Keep in mind there is typically a lag time of two to three months when reporting home prices. It’s not like the stock market, where we can see price changes in real time. Still, this is one of the best indicators we have of long-term pricing trends in the metro markets included in this list.
Along with Miami and Phoenix, Washington, D.C. was one of the three major metro areas where home prices went up from December 2011 to January 2012. Home prices in D.C. rose 0.7% during that one-month reporting period. This is in contrast to the previous one-month period (November – December 2011) when prices dropped by 1.2%.
Despite these fluctuations, the District is still one of the most stable real estate markets in the United States. The annual change in D.C. home prices over the last 12 months was -0.6%, which is insignificant by any yardstick. By way of comparison, Atlanta home prices have dropped by more than 14% over the last year.
The latest data should inspire confidence in price-wary buyers who have heard plenty of doom-and-gloom about the U.S. housing market in months past. It’s also further evidence of something I’ve said in the past — there is no such thing as “the” housing market. Ever since the 2008 housing crash, we have seen an increasing level of regionalization in terms of home prices and stability. Consider, for example, the vast difference between the Atlanta and Phoenix housing markets. Home prices in the former have dropped by nearly 15% over the last year, while prices in the latter have risen steadily during the same period.
Relative Stability in the Washington, D.C. Housing Market
Despite being the nation’s capital, Washington, D.C. is not the nation. It is a micro-market where local home prices are primarily driven by local conditions (employment, population, historical pricing trends, etc.). And local conditions have made this one of the most predictable housing markets in the nation for more than two years.
This is not meant to be a pep talk for local buyers and investors. Home buyers must still perform a healthy dose of due diligence before making a purchase. But this should be done at the local and regional level, more so than the national level. This is an important distinction. And it may seem like an obvious one to those of us who report on the housing market for a living. But it’s less obvious to the average home buyer. In fact, many would-be home buyers in the Washington, D.C. area are still waiting on the sidelines, paralyzed by the gloomy stories they are seeing at the national level.
(I know this because I’ve spoken to some of them, including a man who was wrongly convinced that home prices in the District had dropped by 8% over the last six months.)
Many people are afraid to enter “the” housing market, because they have heard that “the” housing market is still in decline. But when you take out the “the” and plug in Washington, D.C., the data mostly support a buying decision. An annual price change of 0.6% indicates a stable real estate market.
Foreclosure Settlement: A Short-Term Threat to Home Prices?
There is a rising challenge / solution to the nation’s housing problems, and it has to do with the foreclosure settlement that took effect last month. The settlement allows the major U.S. banks to resume full speed ahead in the processing of foreclosure homes. You will recall there was a slowdown in the repossession and resale of these homes, in the wake of last year’s robo-signing scandal. This slowdown created a backlog of foreclosure homes that has followed us into 2012. Now, the banks are able to foreclose on distressed properties at a normal pace again.
This is both a problem and a solution, depending on how you look at it. It will lead to a problem in the short term, but a solution in the longer term. On a national level, it will cause a rise in the number of foreclosed homes for sale. We are seeing this already. This will put downward pressure on home prices. But as these homes are resold, it will help resolve a problem that has plagued many local housing markets for years — excess inventory. In effect, the settlement allows the banks to clear out their distressed inventories more efficiently.
Will this be a problem for the Washington, D.C. real estate market? We will find out over the next few months. But given the District’s current and historical foreclosure rate, I don’t expect the settlement to make any major waves for the nation’s capital. Still, it’s a potential issue home buyers should be aware of. According to RealtyTrac, overall foreclosure activity has risen in Washington, D.C. over the last year. And this trend may continue in the wake of the aforementioned settlement. The question is, how will it affect housing inventory and home prices in the District? Time will tell.