With the recession a full year underway, how is it that places like DC can remain largely untouched?
The scene here in terms of real estate feels a bit surreal. DC homes for sale are simply off the hook.
Back several months ago we happened upon a couple of open houses one weekend and we were a bit surprised to see that prices really didn't seem to have gone down, in fact overall they may have gone up. Real estate agents that we chatted with mentioned the multiple bids that were dominating the real estate market in DC. I took some stock in all of this, but I was still largely skeptical.
Now several months later my observations of the real estate market continue to confound me. To speak in practicalities, I'll give a few examples:
First I have a colleague who is purchasing a first home with her husband and quickly figured out that they had to be ready to pounce, as they were out bid or maneuvered on the first three or four bids they put in on places. By the time they made an offer on the place that they are closing on next week, she wasn't willing to get too attached to the place in case things didn't pan out.
My second example is another colleague who is purchasing a first home with her husband and they are looking for a foreclosed place to get something within their range. They have toured many houses in DC and have seen the horrors of everything from what can go badly with inexperienced flipping of houses to foreclosures gone wrong as the tenant leaves a parting gift of flooding an entire floor to show their resentment.
Lastly we have a good friend who is finally ready to buy a place on her own and she still can't find what she wants within her price range. Thus the search continues in hopes of finding something right out there.
This weekend we went around on open houses to five places (some with multiple listings) in the Dupont area of DC, so all are in a good location. To paint a clear picture of what was seen, here we have the stats:
- $450k - 1 bedroom basement apartment (low light, not renovated, bad layout - what is going is on here people?)
- $500k - 2 bedroom (this is really a master suite, as the second bedroom couldn't actually fit a bed into it), completely dark, must enter from an alleyway.
- Townhouse renovated into four larger apartments (nicely done in many ways but huge wasted space and odd layouts for with functionality). For two bedrooms, prices ranged between $784k and $848k with condo fees between $336 and $423. This makes the building, quite ugly from the outside, worth $3.1 Million.
- Townhouse renovated into four apartments (gorgeous in every way). Prices ranged from $600k for the basement to $1.5 Million for the two level penthouse that was custom made by the owner. This makes the entire townhouse, pictured above, worth over $3.3 Million!
- Another was a townhouse broken into three apartments, but sold as a multi-unit building rather than as individual condos. This was by far and away the most reasonable at $1.3 Million for the 3.5 story plus basement. Part of the "bargain" here was that it wasn't entirely renovated, but still in good shape.
One change with the recession is that on the townhouse pictured above. While it went on the market on Wednesday of last week and had all but the basement sold by Thursday, they accepted five offers for each place but did not accept escalation clauses. I think this was really wise and reasonable for the agent, as while there might have been great demand for the units, it would be unrealistic to price things at higher than the already outrageous costs.
So what is happening with DC? There are a couple of things.
1) Unemployment is still relatively low for the country, with many having more safe and secure jobs such as the good ol' gov.
2) Space is limited - the District simply has finite space when it comes to all of the advantages of living within the diamond.
3) Quality and luxury can also often be the case. Townhouses such as those that we were looking at have longevity and aren't the same as new build construction. They've also been done, like the last example, to impeccable standards. This obviously drives the price further up.
Readers: We'd love to hear how things are in your area. If you have any info on your local markets and how they compare, we would love to hear.
Best,
Miel
15 comments
Thanks for the color guys. Can you do me a favor and Zillow your property or a couple of them and see if there is the same trend we are seeing in San Francisco and Honolulu? There's been a big bounce back. You can check out the charts in my "Real-Time Proof Why Net Worth Is Rubbish" post.
I'm VERY curious to see what's up.
Also, DON'T LISTEN to realtors. They are pros and pulling on emotions and creating a sense of urgency.
FS
That's absolutely ridiculous... if something doesn't seem right there is probably something fundamentally wrong with the market. Even if it takes years for the market to correct. I thought housing in Seattle was expensive. My advice would be to get out of town... why pay that much when you could be living in a beach house blogging.
Wow, things have not changed much there since I lived in Silver Spring/Wheaton area from 86-91. At that time we were on a wait list for miliary housing, rent was about 1300-1400 a month for a three bedroom place. We looked a bit into buying but even the smallest bungalow (one that would cost us around $60,000 in Ohio) were upwards of $700,000 back then. I never really understood why it was that expensive there.
Just this month the house I live in had its tax basis reduced by 5%. All over the county the average drop is 8% but the housing market is really spooky. There are areas where housing is down 40% from 2 years ago. But still no one can get loans to buy anything.
I think part of the answer for the D.C. area's seeming unscathing during the recession has been the tremendous growth in government in the past few years. And it's not just since the Obama administration took office either. The Federal Government has grown quite considerably starting with the Bush administration and following the September 11th attacks on this country. Business is quite literally booming in the government, and a lot of those government jobs are in the D.C. area. Not to mention, government pays pretty well if you count all of the not so on the surface fringe benefits—knowing people and having powerful connections to name just one.
Maybe it's not the whole story, and definitely there are similar examples in areas other than D.C. But I think it at least plays a role.
Financial Samurai - Good idea on the Zillow. They actually have some of the info on our place wrong, so the value is never right. They have our place at 400 sq ft rather than 600 sq ft; while it isn't much in some ways, it would make the place a third smaller! Thus, the value is about $50k less than what we'd put it at. This has been generally consistent since we bought.
Every townhouse on our block was valued at $1 Million. Many of these actually have sold for a combined value of more than that when they are broken into condos. Our townhouse would easily be valued at over $2million if sold tomorrow. Some of the owners have lived here since the nineties, so they are definitely sitting on some gold.
Our neighbor, who's place is now valued at a million, mentioned one night how our building was sold for something like $100k when it was converted. Crazy.
Cheers,
Miel
Anon - Yeah, you won't be seeing me by a $600k basement apartment any time soon.
Blogging from the beach is very tempting though!
Cheers,
Miel
Mo - Thanks for the perspective on home buying in the area. It can certainly feel pretty insane.
Our 600 sq ft place is easily valued at around double what my parent's own in Oregon and I wouldn't even be able to guess at their expansive square footage.
My sis bought her first place a year before we bought ours for half the price for a nice corner lot in Portland, Oregon.
Certainly not a cheap area!
Miel
Jim - I definitely think that government is a big part of it. Plus, while there are plenty of us who don't work directly for the government, we almost all work indirectly through the government.
While we might be in non-profits and at the university, the funding for our projects comes straight from the gov.
Best,
Miel
Of course it's not government workers who are driving prices up to that level. If it were only government workers bidding, the prices would be much more modest. Nor are non-profits' workers driving the market.
Instead, it's the higher-end employees of all the lucrative businesses that find it important to locate next to the government-- including, of course, lobbyists, but others as well. And don't forget the wealthy foreigners (though this isn't as much of a factor as in NY).
is quite surprising to hear that real estate in D.C is still doing well. I had imagined that it would be one of the strongest hi by the recession, but I guess my radar was off.
Anon - Yeah, it might be higher income earners who initially drive up the price, but in the end I think it is truly more about demand.
In my circles there aren't any high earning lobbyist, but still they must pay dearly if they want to live within the district.
It might be expensive, but I still love it. For now our strategy is to stay as long as we can (projected at around 3-4 more years) before we upgrade. Once James is out of grad school that means we'll be able to put away a significant amount and will hopefully one day be able to afford one of those lovely expensive numbers.
Cheers,
Miel
Hi Miel - I think you can edit the data in Zillow, that's what I did for fun to provide the correct info.
Disregarding the valuation, do you see the zestimate chart spiking up?
It is the darndest thing here in SF and Hawaii where my parents have a place. Prices on Zillow have literally rebounded 15-30% for the three properties I took a look at.
Cheers
"Anon - Yeah, it might be higher income earners who initially drive up the price, but in the end I think it is truly more about demand.
In my circles there aren't any high earning lobbyist, but still they must pay dearly if they want to live within the district."
_________
My point is that in the absence of the high earners, housing prices would probably bear a more reasonable relationship to the median income of people who work in the area. It's a perverse kind of "trickle down" economics: as incomes become more unequal (as they have in DC) people who used to be in the luxury market get pushed down into the upper-mid market, and so on, so that higher priced real estate "trickles down" to the "cheapest" houses in the area. The non-lobbyist friends in your circle then have to, as you put it, pay dearly because there is always someone with a little bit more money able to bid up the price.
BTW, I live in Hong Kong, where a new 4000-square foot apartment (on the 91st-93rd floor) is being offered at roughly US$39 million. It will be interesting to see if it fetches that price. My own place, way out in the remote New Territories, cost a more modest US$220,000 last March-- and that's for less than 600 square feet in an 8-year old building.
Are lenders even financing condos in DC?
Here's a snapshot of what I've experienced in the post-bubble market in FL. Buyers can have 20% down and still can't obtain financing on a condo. HOAs issues (bankruptcy, delinquent payments, low owner occupancy/high rental units, lawsuits, builder in control of HOA etc.) are reasons the banks will refuse to lend, and in some cases rightly so. But what do you do when nearly every condo is in the same situation? Cash investors are able to get a deal, while many units sit on the market and listings eventually expire. Thus making the situation worse for condo owners. As a first time home buyer I'm blocked out of the condo market and have reluctantly warmed up to buying a single family home. Maybe it won't be so bad.
Christopher - Actually, this is what we had heard at the start of the bubble bursting and presumed would happen with oddles of condos in DC, but that hasn't happened from anything that I've heard. In fact, one my colleagues that I mentioned in the message just had an offer accepted on a condo. Things may change, and it might depend on the building, but thus far DC hasn't seen this.
Thanks for sharing.
Best,
Miel
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