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.
THE “WHAT”
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.
THE “WHERE”
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 Park , Palisades/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::
THE “WHY”
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.
*http://dcmud.blogspot.com/2012/10/micro-units-at-wharf-could-be-dcs-first.html
**The Expanding Wealth of Washington
***Zillow Rent vs Buy Index
