Home prices in the Washington, D.C. metro area rose steadily from 2009 to present. But the rate of increase has slowed in recent months. This slowdown is partly the result of inventory gains.
According to the latest (May 26) S&P/Case-Shiller Home Price Index, house values in the Washington area rose by a mere 1% from March 2014 to March 2015. During that same period, much larger gains were reported in cities like San Francisco (+10.3%), Denver (+10%), Dallas (+10%) and Tampa (+8.1%).
So what’s going on in the Washington, D.C. housing market? Why have home prices leveled off recently? In short, there are more homes for sale today. The inventory shortages seen in the past have eased. The current real estate market offers home buyers more options, when compared to a couple of years ago. And this has taken some of the steam out of house value appreciation.
According to Realtor.com, the number of homes listed for sale in the Washington metro area declined by more than -30% over the last year. This is based on their monthly housing summary that examines the 300 largest housing markets in the U.S. That’s a major contraction in terms of housing supply. But this trend appears to be reversing itself of late. From April to May 2015, for example, the total number of listings in the D.C. area rose by 11.7%. When supply grows faster than demand, appreciations slows.
Prediction: Washington Home Prices to Rise More Slowly?
According to Zillow, home prices in Washington, D.C. have risen by more than the paltry 1% annual gain reported by Case-Shiller. (Different data, different results.) The economists at Zillow have reported a 5.7% increase in average home prices for this area, over the last 12 months or so.
But looking forward, their 12-month prediction is more modest by comparison. They expect average house values to rise by around 2.3% over the next 12 months (as of June 2015). That’s just for the District itself. Their home-price forecast for the entire Washington, D.C. metro area is even more conservative — a mere 0.3% year over year.
So regardless of what data source you use, the consensus is clear. Most analysts anticipate smaller home-price gains for the D.C. area over the next year or so, compared to last year. And inventory changes have a lot to do with it.
Expensive D.C. Real Estate Market Drives People Away
Washington home prices might rise more slowly over the next year or so, but it’s still an expensive real estate market by national standards. In fact, overpriced housing is one of the top reasons why new residents leave the area soon after moving into it.
According to the District of Columbia’s Office of Revenue Analysis, more than a half-million people reported moving into the District between 2000 and 2014. But the District only recorded a net population gain of 90,000 residents during that time. So it’s basically a revolving door.
Why do so many people move into the District only to leave it a few years later? Home prices have a lot to do with it.
The bar graph below was originally published on DistrictMeasured.com, the Office of Revenue Analysis’s blog. This population survey lists the reasons people left Washington, D.C. during that 14-year period. As you can see, the housing market had a lot to do with it. Many people leave to find more suitable (and more affordable) housing elsewhere, often in one of the many bedroom communities that surround the District.
Home prices in Washington, D.C. are higher than the national average. The median sales price in the District is $420,000 to $480,000, depending on the source. Nationally, the median sales price is currently around $290,000.
So yes, real estate is relatively expensive in the Washington, D.C. But once you move further into Virginia or Maryland, home prices begin to drop. This “halo effect” is a common occurrence around major employment centers, and it’s well displayed in the nation’s capital.
Disclaimers: This story contains third-party data that is deemed reliable but not guaranteed. Additionally, it contains forward-looking statements (predictions and forecasts) for the Washington, D.C. real estate market. Such statements are the equivalent of an educated guess and should not be relied upon as financial advice. We make no claims or assertions about future home prices in the D.C. area or elsewhere in the country.