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Home Publications Blogs Beat the Press Maybe the Housing Market in DC is Slow Because Prices Are Too High

Maybe the Housing Market in DC is Slow Because Prices Are Too High

Tuesday, 12 August 2014 07:02

The Washington Post had an article dedicated to uncovering the reason that the housing market in Washington has been slow in recent months. While it runs through several possible explanations it leaves off the most obvious one: prices are too high.

Inflation adjusted house prices are more than 50 percent above their pre-bubble levels. Back in good old econ 101 we always taught that if supply exceeded demand then the price should fall. The fact that prices in DC are so far above their pre-bubble level would be good evidence that this is the problem.

Comments (8)Add Comment
Somebody needs to say amen
written by DC Fem, August 12, 2014 7:48
This area is full of couples who make over 100k per year and still can't afford to buy a home. That's what's wrong with this picture.
Housing Bubble
written by JayR, August 12, 2014 7:53
The new housing bubble is more than just the Washington D.C. area. I wonder to what extent people are using their new housing wealth as a ATM? For instance borrowing against housing equity to pay down credit cards. It seemed like I was just the other day reading a report about how savings were up and spending was up, which given stagnant wages didn't seem possible.
written by Bloix, August 12, 2014 8:46
Apparently the Post real estate reporters don't read their own paper. People aren't buying houses because federally-funded jobs (direct hires and contractors) have been cut. House prices fall slowly because people with mortgages are underwater and can't afford to sell at a market-clearing price:

From July 13:

"James Bohnaker, an economist with Moody’s Analytics, called 2014 “a lost year” for the D.C. area, one in which there has so far been little movement toward a healthier economy....The labor market is showing little growth....Economists say the inertia in the job market is likely tied to the federal spending cuts known as sequestration...the biggest job creator for much of 2013 and 2014 has been the hospitality industry, which is typically low-paying....Economists and experts say the health of the local housing market is closely linked to the situation in the job market..."


Govt contractors, wealthy offspring, lawyers, and cash buyers
written by Jurassic Carl, August 12, 2014 11:12
DC is generally where rich people go and grow, but Bloix is right- there has been a cutback in government contractor wealth in the past year or so.

Who's left?
100K couples?- there are fewer of these now.

Government employees- fewer, but they will always be fat and happy, even if not in the most pricey real estate.

Wealthy (Private sector rich, Congressman, and Senator's) kids will always be there to prop up the high end rental and the "starter condos" that mummy and dadddy by for Muffy and Buffy while they intern on Capitol Hill.

Cash buyers-- I know a few real estate people in the area, and I have heard that cash buyers and investors are swooping in and outbidding all but the 200K single lawyers for high end condos.

stocks and flows issues....
written by pete, August 12, 2014 1:32
Dean is confusing stocks of goods like housing, with flows of goods like pizzas. The housing stock has a certain value. Turnover, or resale, depends on many things, typically demographic changes. Thus, looking at the turnover in the housing market cannot easily be interpreted as "prices are too high." Consider a comparable market, the stock market. There are billions of stock trades (buys and sells) every day, yet many think stocks are high priced. There were billions of stock trades when stocks were low. Simply no simple relationship between the value of a stock or house and trading. So if indeed high wage employment is down or falling in DC as the beltway bandits are squeezed, then values should stop rising or decline. But that can happen with or without substantial real estate transactions.
stocks and flows language ...
written by Sanjiv, August 12, 2014 4:40
Ok, then say that the bid-ask spread is too wide instead. Whether you want to interpret that as ask prices that are too high or bid prices that are too low will depend on your perspective.
Case-Shiller for DC
written by Squeezed Turnip, August 12, 2014 5:57
I'm sure there must be some demand from folks wanting to stop living their lives in rush hour (a high school friend of mine keeps updating me on changes in his neighborhood). But the price relative to quality seems to have gone quite above the trend since (hint hint) February 2012. Sellers are squeezing too much surplus from buyers, so buyers get cold feet faster.
Oh the denial!
written by Dave, August 13, 2014 3:42
I think the reason so many people, including the WP, cannot see something like price level as being relevant is because it would force them to consider the possibility that the housing market isn't just another investment market. Deniers talk about things like "a sustainable bubble" and they tend to believe the housing bubble would not have been a problem if it hadn't popped.

When housing prices get this high, it degrades the lives of many people in profound ways. It isn't ok to create a bubble regardless of whether it pops or not. This isn't just some market for speculative investment. This affects the foundation of millions and millions of lives.

Deniers might never see their wrongs. DC is just an example of how the problems with a bubble can stare people right in the face and they still can't see the problem.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.