Housing Market issues #1

Most people in DC know that the subprime mortgage crisis is impacting the city less than the suburbs, particularly compared to the exurbs. However, there are still many foreclosure and short sale properties on the market in the city.

In the process of looking for a house, and balancing the preferences of my girlfriend and myself, it makes me think anew about the difference between house shopping in the suburbs vs. the city. Many people don't really understand this. Maybe I wouldn't either, if I hadn't experienced at least two other market "crashes" and two other market "booms," and observed the process of neighborhood change in the H Street NE, Capitol Hill East, and other neighborhoods in the core of the city, especially those with transit access. (And it can be really difficult to discuss this with family members who have lived in the suburbs for decades and decades.)

The market for residential property in DC proper is impacted particularly by four factors:

1. Participation in the market by people buying second (or third or fourth...) houses (this stokes demand and prices extranormally);

2. The still positive trend supporting urban living (confirmed by research by Christopher Leinberger and the Brookings Institution, which states that 30% of people prefer urban housing; 40% prefer the suburbs, and 30% don't care either way);

3. Demand for historic building stock, which by definition is in limited supply, since the housing people want the most in this category tends to be at least 70 years old; and

4. Transit, particularly subway rather than bus, access and/or closer-in locations.

A 5th factor concerns the presence of in-neighborhood retail and other amenities, meaning that Capitol Hill, Dupont Circle, etc., have a higher and constant demand than Deanwood, even though all have subway stations.

(Those of us who can't afford housing in the best locations replete with amenities move to places with great houses but lacking amenities. Then we clamor for amenities to come to our neighborhoods...)

Of course, this is built upon the foundational somewhat constant demand generated by the presence of the federal government.

So, crappy, at least what I would consider to be butchered, houses, are still selling, if they are well-located and close to transit. But good houses, or even better ones, but ones needing some work maybe, are still on the market, especially if they are in areas where the transit access is bus-based rather than subway, and/or in areas that aren't replete with retail amenities.

But it's not crazy demand. I saw a 2,400 s.f. rowhouse (this is twice the size of the typical rowhouse in the H Street NE neighborhood) in upper NW, with most of its original wood unpainted, original garage still present in the basement, incredible linen closet built ins upstairs, the kitchen needs some work, $380,000. But it's not remotely close to an area like the "Atlas District." Still on the market. (We bought a different place. But I really liked this one.)

And houses in great condition and location haven't gone down in price, and they don't stay on the market that long. E.g., houses in Capitol Hill are selling and Capitol Hill keeps expanding east and north in terms of demand for housing and heightened prices. Improvements along H Street drive demand north. Improvements along Pennsylvania Avenue drive demand east. Can you imagine what will happen in the Potomac Avenue Metro area once the Harris Teeter finally opens next month?

I suppose to most of the people who read this blog, this is pretty obvious. But this kind of obviousness isn't being covered in the typical media stories about the issue.