Bubble in Washington, DC?

8 Replies

I've been monitoring prices in Washington, DC, and I am seeing some really rapid appreciation in the last 2 years. A friend of mine has been getting outbid at every turn. Is this flight capital from other countries, or are prices just making up for losses from the 2007-2011 downturn? Last year saw something like a 5% increase in sales prices, and volume has gone up dramatically.

Is this market getting overheated?

Yes, due for a crash in 2016 in my opinion

Lots of overseas cash in NY and probably elsewhere in the US as well.

http://therealdeal.com/issues_articles/the-year-of...

This quote is crazy "Chinese buyers have accounted for roughly 25 percent of all buyers for homes $3 million and up in Nassau County between January 2013 and mid-February, she said."

With low rates and lots of cash looking for better then savings ROI valuations are starting to look pretty high in lots of places.

I think overall the increases in the Washington area real estate are justified or at least sustainable based on fundamentals.  An overall crash in real estate could hurt prices in the DC area, but I don't really see most of the behavior of the bubble.  I think a big thing that has people thinking bubble is a lot of prices have returned to those levels.

That said a lot of the activity seems to be in areas that are most susceptible to bubbles - large higher end apartments, luxury condos and luxury developments/in-fill.  

I have been in this market for a long long time and I still believe it is undervalued for a major international city. Check the values in any other major international hub such as NY, SF, London, Paris, on and on......The all are way more expensive for both land and per sf of building. 

That being said, we never chase the market rise and play the appreciation in any deal.  If it doesn't work today, we won't buy it unless it is specifically a buy and hold investment for future redevelopment. 

I agree with Steve - there is a lot of overseas cash available - at least, we see a lot of Chinese cash going to the US.

We have been working with several Chinese buyers for Washington DC.  I believe that there is more to come - even when the market continues to appreciate. Washington DC is still cheap in comparison with Hong Kong, Shanghai and Beijing.

I think while we may still be seeing an overall price increase in the DC area, that does not tell the whole story of the market. Yes median and average prices are rising, but a lot of that is because the low end of the market is up, along with the high end of the market. You will see that in gentrifying neighborhoods, as prices approach the FHA and conventional loan limits that there is a plateauing of prices. Let's take upper Petworth for example. As redone rowhouses started passing the $600k mark, price growth in that price range slowed. But the nonredone properties in the $400's continued to rise. So the median price rises, but the market for those homes in the $600's stagnated.

So now that that price point stagnated, redone homes in Brightwood just to the north have gone up.

So from an outsiders perspective like @Andy Gross watching from Hawaii, you may see just prices rising, but doesnt tell the whole story of the DC market.  The loan limits create a ceiling in many neighborhoods where the jumbo loan people would not live.

There is also the factor that with all the money in the DC market, they compared to competitors like San Francisco, Boston, NYC...that DC has never traded at the valuations of those cities despite the DC area being center to 10 of the top 20 richest counties in America by median income.  

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
(301) 893-4635
Originally posted by @Russell Brazil :

I think while we may still be seeing an overall price increase in the DC area, that does not tell the whole story of the market. Yes median and average prices are rising, but a lot of that is because the low end of the market is up, along with the high end of the market. You will see that in gentrifying neighborhoods, as prices approach the FHA and conventional loan limits that there is a plateauing of prices. Let's take upper Petworth for example. As redone rowhouses started passing the $600k mark, price growth in that price range slowed. But the nonredone properties in the $400's continued to rise. So the median price rises, but the market for those homes in the $600's stagnated.

So now that that price point stagnated, redone homes in Brightwood just to the north have gone up.

So from an outsiders perspective like @Andy Gross watching from Hawaii, you may see just prices rising, but doesnt tell the whole story of the DC market.  The loan limits create a ceiling in many neighborhoods where the jumbo loan people would not live.

There is also the factor that with all the money in the DC market, they compared to competitors like San Francisco, Boston, NYC...that DC has never traded at the valuations of those cities despite the DC area being center to 10 of the top 20 richest counties in America by median income.  

 Nice analysis. So which neighborhoods are following Brightwood in gentrification and government development? 

Hi all,

On a similar note, I'm a new real estate investor living in DC, and I'm considering buying a home with rental income potential. However, the market seems so hot right now that I'm wondering if it's a good idea. Most 3 bed/2 bath houses are going for over $500K, only some have basements to rent out. I want to stay in DC, so would be paying increasing rent anyway. What are your thoughts on buying a property as primary residence and rent to tenants or Air BnB? Do you have maximum price or other criteria for your deal analyses?

Thanks!
Piper

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