Monday, December 31, 2012

2012 DC Real Estate Year in Review: Growing Prosperity in the Middle East…of DC

2012 was a banner year for real estate in the District proving yet again that DC is one of the strongest markets in the country.  Let’s take a look inside the numbers to see the what, the where, and the why of DC Real Estate in 2012. 


Increased demand and dwindling supply was the story for DC real estate in 2012.  On the demand side, steady population growth (especially among 24-35 year olds) thanks to DC’s strong economy and ever-increasing livability combined with historically low mortgage rates and dramatic rental rate increases to create a growing pool of potential buyers looking to become homeowners in 2012.  On the supply side, inventory continued to decline throughout the year with active listings falling below 8,000, representing a 40% decrease in active listings from this time last year and a far cry from the peak activity that we witnessed in 2007 when the market topped 25,000 active listings.  With demand outstripping supply, DC saw significant price appreciation in 2012, especially in the more affordable areas of the city where intrepid buyers increasingly engaged in bidding wars.  High demand and reduced inventory also dramatically drove down average days on market resulting in a fast-paced market that both excited and exhausted prospective buyers seeking to get into choice areas before the market passed them by.  While prospective buyers hope that a slew of new rental and condo construction projects (have you seen all the cranes in DC?!?!) that are slated to hit the market in 2013 will increase inventory and slow price appreciation, many experts believe that increasing demand will continue to drive the DC market upwards in the New Year.  That being said, added uncertainty due to the stalled fiscal cliff negotiations and the potential impact of mandatory federal spending cuts on the region’s economy makes predicting the path of the DC real estate market in 2013 considerably harder.


Previous posts have touched on the movement of young professionals and development dollars from West to East within the District.  As you can see 
from the data above, real estate values in Georgetown, Chevy Chase, Cleveland ParkPalisades/Spring Valley, and West End remained the priciest in the city in 2012, well above the district average sale price of $546,000.  With the exception of Chevy Chase (20015), the highest growth in average sales price in 2012 was seen in neighborhoods bordering both sides of the Anacostia River where average home prices were some of the lowest in the city in 2012 (20018: $316,000 20024: $294,000; 20020: $182,000; 20019: $162,000).  From a sales activity perspective, real estate in what I will call Middle East DC was the real story of 2012.  

The Real Winners of 2012

When looking at a combination of indicators, including percentage increase in sales price for both condos and single-family homes (attached and detached), percentage reduction in days on market, average sales price to listing price ratio, and percentage of listings sold within ten days the following areas were arguably the hottest DC real estate this year::


In previous blog posts, I have discussed some of the factors that have contributed to our market’s strength:

·        Population Growth: Recent estimates show as many as 1,100 new residents entering the District each month (70% of them under 35!)*.  At a 2.7% growth rate, the DC Metro Area has grown faster than any major region in the country.
·        Expanding Wealth: Since 2007, while the overall economy has expanded a mere 3%, DC’s regional economy has grown a remarkable 14%.  At 5.5%, DCs unemployment rate is close to the lowest for any major metropolitan area.  Since 2010, DC’s middle-income job growth has expanded at four times the national average and the region now ranks fourth in that category.  According to a recent Gallup poll, Washingtonians are the most optimistic in the country about improvements in the economy which is not surprising because DC boasts the region’s wealthiest and best-educated population.** 
·        Mortgage Rates Reach Historic Lows: In November, the 30 year fixed rate mortgage hit a record low 3.31%.  In 2007, a 30 year fixed mortgages averaged 6.34%.  To put this dramatic drop in perspective, a $500,000 home purchased today with a 20% down payment and a mortgage rate of 3.31% rate would come to approximately $2300/month (PITI: principal, interest, taxes, and insurance).  At 6.34%, the same home would cost approximately $3,000/month.  That is a difference of $700 a month and over $260,000 in interest payments over the life of the loan!!
·        Rental Rates Outpace Purchase Market Increases: According to Zillow’s Rental Rate Index, rates district-wide increased 9.1% year over year making buying more attractive that renting in the area for individuals who are planning on being in their home more than 3.5 years***
·        Low Inventory Levels: Active listings dropped below 8,000 units for the first time since 2005 and new listings remain at their lowest level in over a decade.  Limited supply coupled with increasing demand resulted in price appreciation across almost all areas of DC.

**The Expanding Wealth of Washington by Joel Kotkin. Forbes 3/19/2012
***Zillow Rent vs Buy Index

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