Monday, November 12, 2007

AAAAHHHH!! When Will it End? Prices Expected to Fall 25.1%

This morning while flipping through my RSS feeder I came across a disturbing prediction from CNN Money. Actually, disturbing doesn't even begin to describe the reaction from their analysis for the price decline in the DC Market. According to a November 11th article titled "25 Real Estate Markets Poised to Fall," DC ranks number 10 out of 25. The majority (80%) of the other markets consist of California and Florida.

Now the news...
CNN Money expects DC area prices to decline another 25.1% over the next five years with the home price/rent ratios currently at 26 when they average in the 16 range. Their disclaimer under the article states: "Note: People typically won't spend more in monthly costs to own a home than they would to rent. While prices soar from time to time, sending the ratio to exceptional heights, the relationship eventually should return to its historical average."

While this may be some of the most shocking and quite ridiculous news I have heard in a while, one cannot help but to call it a complete overestimate for falling prices. In a recent Moody's study I read commissioned by Countrywide Home Loans, they predict prices will fall until quarter 2 of 2008 and bottom off, and losses may sum up to another 12-14% from this past July.

The big picture...

While I do believe that prices are a bit overinflated, there is a bit of skepticism as to how much further prices may fall. During the next 12 months...
-17,000+ soldiers are returning to Ft Belvoir from overseas
-50,000+ additional jobs will be coming to the DC area, mostly governement
-the US government will have a complete turnover of positions

This may not seem like much when compared to the area, but when compared to the population of DC, currently at 581,000+, a 9%+ increase in job growth will have a significant affect on the local market. I do realize that many if not most of those who will be employed will not live in the District, but even 20% of those new employees living within the city limits will have a significant effect on the market.

1 comment:

Anonymous said...

IMHO the problem here is that the mix affects the median. I live in PG county (College Park) and prices have probably fallen close to 50% from peak already. So I think we're close to bottom. But higher end neighborhoods are only now starting to fall. The change in the mix of housing that sells shifts the median sales price. - Jim A.