What the Hell is Happening in DC?

The housing market is as crazy as the fiscal cliff negotiations.

Sarah L. Voisin/The Washington Post, via Getty

This house triggered a bidding war that garnered 168 offers. Yes, you heard me right: 168 offers. For a three-level, two-unit home with the finest in décor that Home Depot had to offer—in 1991.

The house was sold for $760,951—which is $360,951 over the asking price, and $260,951 higher than similar homes have been going for in the area. And frankly, having moved to D.C. five years ago, even $500,000 seems a little much for a house in that condition.

What on earth is going on in my city? Surveys of neighborhood home sales have found year-over-year increases of up to 75 percent in some neighborhoods. Consider this string of home prices, for a small house in Capitol Hill:

June 2000List price: $149,000.Net sold price: $139,874.

July 2004List price: $319,000.Net sold price: $314,000.

March 2007List price: $399,900.Net sold price: $385,000.

April 2009List price: $449,000.Net sold price: $432,500

It just sold again for $485,000. The Washington Post says that bidding wars are breaking out all over the district:

The median home sale price in the District is up 14 percent from last year, according to RealEstate Business Intelligence (RBI). And the average number of days houses spend on the market has fallen by nearly 30 percent, to 53 days.

This seems crazy to me. Yes, D.C. is a desirable place to live, and of course mortgage rates are attractively low. But bidding wars are getting outrageous—my mother lost multiple houses, one of which had 28 offers on it. My mother, who sold real estate in New York for decades, held firm: if she couldn’t buy a house at a decent price, she wouldn’t buy at all. But that just highlights the frenzy that these bidding wars are generating in others. The normal pattern seems to be that people lose multiple houses, then decide they’ll pay anything.

And fair enough, maybe this is just the normal process of supply and demand. D.C. has effectively had a foreclosure moratorium since 2010, which has made inventory very tight. And our unemployment rate—at least, for the affluent professionals who are buying these houses—is admirably low.

But there’s something about it that feels off. Anecdotally, people seem to be buying $650,000 houses on the assumption that they will someday turn into $1,000,000 houses—that central Washington will turn into Manhattan. For all sorts of reasons, this seems dubious to me. I won’t complain if I’m wrong; I’m not averse to someday owning a $1 million home that I don’t actually have to pay $1 million for. But well, color me skeptical.

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The couples getting into these bidding wars seem desperate—desperate!—to buy a house. But it’s not as if there isn’t an alternative to buying: you can rent. D.C. rental prices have also been soaring over the past few years, but neighborhoods like mine are finally seeing the developments open up that were delayed by the 2008 financing crunch. As a result, apartment buildings nearby are offering all sorts of givebacks to entice new tenants. Yet just as rental prices start to soften, the purchase market seems to be getting even hotter.

It makes me wonder if Washingtonians learned anything in the bubble. And the Washington Post story makes me wonder if we’re the only ones. “Seattle, Boston and Palo Alto, Calif., are experiencing the same kind of scramble as Washington, with offers being made before open houses are held,” says their story. “(One house hunter in the Boston area told the Boston Globe this year that the desperate buyers reminded him of ‘people trying to get on the last lifeboat on the Titanic.’)” I sort of wonder if they aren’t crowding onto the Titanic itself.