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U.S. Capital Housing Joins President's 'Lame Duck' Status

03/17/2006 12:30 AM

Washington, D.C.'s housing market is exhibiting some of the same lame duck characteristics afflicting the White House.

With his own political party members chipping away at his remaining presidential authority by denouncing the U.S. trade ports deal with Dubai Ports World, the President also has fallen far from grace in public opinion polls.

Builders are withdrawing from an overblown housing market as investors, long champions of home value appreciation in the nation's capital, are bailing out -- especially from the condo market.

"Over the next year, the largest risk to Washington, D.C. price appreciation is in the attachedhousing sector," said Victor Furnells, a regional Director in the Washington D.C. office of Hanley Wood Market Intelligence which provides data and consulting services for home builders, developers, lenders, and building-product manufacturers.

"Builders are being faced with selling inventory where the resale market is flooded with investors unloading their properties," Furnells added in a recent release discussing the area's bulging inventories of new housing.

For the past five years, the Washington, D.C. area's home market has bested that of any state in the nation as the market enjoyed a more than 127 percent increase in home price appreciation, according to the Office of Federal Housing Enterprise Oversight..

Last year's home price values, rising an average 21.98 percent, beat out high-flying California and New England housing markets. Only Arizona, Hawaii and Florida turned in better home price appreciation last year.

By the National Association of Realtors' measurements, the median single-family home price of $424,700 by years end in the greater Washington-Arlington-Alexandria DC-VA-MD-WV area represented a 25 percent increase from the $339,800 median in 2004.

The median price of condos rose even more, by 28 percent, from $231,600 in 2004 to $295,900 in 2005.

But by year's end, chinks in the armor of one of the nation's hottest housing market were beginning to show.

The Valuation Index, a "price bloat" indicator developed by PMI Group of Walnut Creek, CA to red-flag markets where prices are significantly above where they should be based on historical norms, named Washington, D.C. as one of the East Coast's most overvalued markets.

PMI said in late 2005, the district's home prices were already overvalued by 18.2 percent.

It wasn't surprising then, when Foreclosure.com later stated the inevitable.

"We're beginning to see price declines in most eastern markets in the fourth quarter of 2005," said Foreclosure.com president Alexis McGee.

"In Washington D.C., prices were flat over the last 30 days, but down 5.4 percent over the last 90 days," McGee said in February 2006.

Hanley Wood said the demand for affordable housing in the Washington D.C. market sparked a rush to develop more attached housing in recent years, a boon for home buyers who managed to compete with investors and speculators.

The rush to build, however, resulted in a standing inventory of more than 2,411 attached housing units in Washington, D.C. proper by the end of the year, an astounding increase from the mere 71 units available a year earlier, Hanley Wood reported.

But by late 2005 the economy was changing, joblessness was rising and so were interest rates. For investors, it was time for profit taking.

"Investors, who were holding a large inventory of attached housing, started looking to cash in on their investments," Hanley Wood reported.

Now it will take a variety of replacement buyers to keep the market afloat and the hope is that the downturn will move as quickly as lame duck season.

"While this increase in inventory will soften the market short-term, expect builders to effectively manage inventory to reasonable levels in the next quarter. If sales remain on par with 2005, the nearly 1,200 sales per month will quickly deplete inventory," said Furnells.
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