The last time home prices skyrocketed in the nation’s capital, a devastating dip in sales followed shortly thereafter. Circumstances are a bit different this time around.
David Howell of the Washington Post argues that Washington D.C. is not at risk of a housing bubble.
Howell examined the lay of the land early last decade in Washington D.C., when prices rose by at least 15 percent each year from 2002 to 2005. At the time, mortgage underwriting guidelines didn’t exist, and buyers rushed to obtain homes that they could not actually afford. As mortgage rates began to rise and guidelines tightened, a wave homeowners tried to unload properties they could no longer afford. Prices dropped 15 percent in 2009, and the number of sales was 40 percent lower than in 2005, the peak year.
Conditions are different today, Howell explains. Supply is low, and while demand is high, it’s not at unreasonably elevated levels, as it has become harder to qualify for a loan. Home price appreciation ranges between 6 and 8 percent in D.C.
Markets seek balance over time, as long as they are not artificially stimulated or restricted. The hottest areas in our region, such as Washington and its close-in suburbs, are due for an adjustment because 6 percent to 8 percent appreciation isn’t sustainable forever.
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