Matthew Yglesias » Central City Home Values Holding Up Amidst Collapse?

Mar 31st, 2009 at 6:29 pm

Central City Home Values Holding Up Amidst Collapse?

Alejandro Lazo writes about the decline in home prices in the Washington, DC metro area in 2008, writing that “By any measure, 2008 was a brutal year for the local real estate market, as gains made during the housing boom continued to unravel.” Except it actually wasn’t so brutal in the District itself where prices went up. Ken Baidfeld offers this chart and hypothesizes that “strong central cities” may be weathering the housing bust better than sprawling exurbs:

I think this is probably correct in broad terms. Housing overcapacity, almost by definition, exists on the far-flung fringes of metro areas. On the other hand, the ZIP-by-ZIP analysis of changes in the District doesn’t show a particularly clear pattern.

Comments
35

35 Responses to “Central City Home Values Holding Up Amidst Collapse?”

James Gary Says:
March 31st, 2009 at 6:36 pm
I have a theory, and it is mine, that housing prices in areas inhabited by rich people with good jobs—who can presumably get credit on better terms than the typical sub-prime financial-sodomy rates popular during 2004-2007—will decline less than housing prices in less affluent areas.
anon Says:
March 31st, 2009 at 6:41 pm
“Housing patterns in Washington DC the year a new party takes over the Presidency” is kind of a funny test case to use. I’ve got to think that would perturb the market in a very non-generalizable way.

Not that it’s necessarily wrong (by definition, all central cities tend to be unique), but it is probably worth looking at the core of NY, Chicago, Boston, Atlanta, LA (if, in fact, such a beast exists), as well as DC. Maybe compare their decline relative to their less core areas to deal with the whole “Detroit effect,” where a single outlier will break your chart.
anon Says:
March 31st, 2009 at 6:43 pm
And, uh, as someone who just spent a fortune on a home in a central city, I am deeply, deeply rooting for this to be true.
andy Says:
March 31st, 2009 at 6:46 pm
love to see Pr William and Loudon counties in the pits – too bad!
TraderMark Says:
March 31st, 2009 at 7:00 pm
All the federal govt jobs plus lobbyists. What’t not to love – demographics working in the area’s favor.
JimboSlice Says:
March 31st, 2009 at 7:26 pm
DC is an odd city and cannot be compared to the rest of the USA. First it is nearly recession proof because of all the government jobs and contractors. Second every 2 or 4 years you get massive movement into and out of the city if the political party in power changes.
TS Says:
March 31st, 2009 at 7:48 pm
Matt: “I think this is probably correct in broad terms. Housing overcapacity, almost by definition, exists on the far-flung fringes of metro areas.”

Depends on what you mean by overcapacity. You have to take price into account. You can easily have an overcapacity of very expensive housing in a city, as measured against the number of people able to pay the prices. This over time should result in that housing becoming less expensive. Not obvious that prices will fall less in cities.

I also suspect that both DC and NYC housing markets are substantially different from other cities. DC because of government, NYC because of finance. For NYC, you might expect price decreases to be delayed versus the rest of the nation, due to falling housing prices triggering problems on Wall Street that then result in layoffs and fewer bonuses a few months later. NYC has fallen less than many places in CA and FL, but I think the real fall is about to come soon.
Shine Says:
March 31st, 2009 at 7:49 pm
LA home prices in certain areas — Silver Lake, Los Feliz, most of the Westside, Santa Monica — are holding up more or less with moderate price declines, compared with the beating that the rest of Southern California is taking. Remember that Southern California is one of the four “sand areas” (So Cal., Vegas Metro, Phoenix Metro, South Florida) where the Bubble was the biggest, so the price decline are the steepest. And the Westside areas in LA are declining primarily because of the huge declines in the surrounding areas.

Richard Florida may be on to something:
http://www.theatlantic.com/doc/200903/meltdown-geography
harold Says:
March 31st, 2009 at 8:00 pm
i grew up in central city, ( colorado ) so i’m glad to hear that prices are holding up. sincerely, harold
Paul Product Says:
March 31st, 2009 at 8:00 pm
anon and JimboSlice – Although I definitely agree that the presence of so many government (and government-related) jobs in the metro DC area helps boost/support housing prices, I don’t think you can chalk up much of the resiliency of the DC housing market to partisan changes on the Hill or in the Whitehouse. I’ve wondered about it, and heard people talk about the possibility. (E.g., “Oh, we’ll wait until mid-November 2008 to sell our house, because all those Obamanians or McCainiacs coming to town will be scampering to buy houses, and we’ll make a mint!”) But the changing of the guard, when it happens, doesn’t seem to have that much effect. A ton of the people entering the new administration already live here (much to the consternation of those who want, or think they want, to “throw the bums out” and stack the government with Washington outsiders). And to a large degree, the new arrivals are offset by the old guard leaving town (meaning that while the changing of the guard might boost sales volume a bit, it would have less effect on prices). Not to mention, the stats for 2008 wouldn’t capture a lot of Obama-generated sales, since there was a pretty short window between the election and the end of the year (in which to close on a house).

If there are partisan changeover effects, they might be more likely felt between neighborhoods and locales with metro DC. The incoming Obama folks might have some slight tendency for some neighborhoods over others (e.g., Adams Morgan over Georgetown, or MD or VA, or Chevy Chase over McLean) but it’d be interesting to see if those sorts of suppositions are borne out by actual statistics for early 2009. Capitol Hill probably has a bit higher sales volume at the beginning of odd years (right after Congressional elections).

I think the number of people moving in and out the DC metro, or from one Dc neighborhood to another, for partisan reasons would be dwarfed by the numbers of people moving to DC – and in particular to central neighborhoods of DC and close-in suburbs – for other reasons like (non-partisan) jobs and transportation.
joe from Lowell Says:
March 31st, 2009 at 8:27 pm
The same pattern is true in eastern Massachusetts, too. Boston and Lowell, and probably many other central cities, have held the value better than the suburbs.

In Lowell – which has both urban and suburban neighborhood – condominiums (which are almost all in the urban core areas) have held their values better than single family homes. That is a particularly striking fact, given that condos prices are usually much more volatile than single family home prices.
joe from Lowell Says:
March 31st, 2009 at 8:31 pm
All the commenters making the point about DC being recession proof are missing a rather significant fact: the suburban areas and urban core are part of the same metro area. Lots of government workers own in Maryland and Virginia and commute into the city. The factor you are mentioning applies to both parts of the region.
db Says:
March 31st, 2009 at 9:04 pm
All the commenters making the point about DC being recession proof are missing a rather significant fact: the suburban areas and urban core are part of the same metro area. Lots of government workers own in Maryland and Virginia and commute into the city. The factor you are mentioning applies to both parts of the region.

True. I would also add that, on the margin as prices in the suburbs fall there will still be some people who will move out to the suburbs chasing low prices. This substitution will drive prices in DC below what they would otherwise be. Sure it is nicer to live close in and most people underestimate the toll a long commute takes on them, but living close in to a central city and living in its exurbs are still substitutes, which means that their fortunes will generally rise and fall together.
Matt Steinglass Says:
March 31st, 2009 at 9:15 pm
the ZIP-by-ZIP analysis of changes in the District doesn’t show a particularly clear pattern.

Umm…seems to me it shows the same old “where are the white people?” pattern.
Nikolas Schiller Says:
March 31st, 2009 at 9:40 pm
To get down to the nitty-gritty of DC’s home values check out the DC Office of Tax & Revenue Real Property Tax Database and then check the current market listings.

For example, on my block, not far from Matthew’s residence, there is a foreclosed home that the bank purchased for $582,000 last month and is currently for sale at $536,000. Last year it was assessed at $757,740 and it’s proposed 2010 value is $681,490. This means the value of the home will go down next year, but it will still be cheaper than what it’s being sold for.
TT Says:
March 31st, 2009 at 10:28 pm
All I know is that I’ve gotten my ass kicked over the past couple of years. I bought my place in Tysons Corner for 310K in ‘05. It’s now assessed at 205K. But at least I’m a stone’s throw from where one of the new Metrorail stations will be built, so hopefully the property will recoup value over the next decade.
Mike the Mad Biologist Says:
March 31st, 2009 at 10:34 pm
Maybe the 20036 zip code (Logan Circle, Dupont, south of U) is analogous to the outer suburbs in that it was a recent gentrifying area (prices go up a lot so they can come down a lot)?
joe from Lowell Says:
March 31st, 2009 at 10:38 pm
Mike,

Given the size of that area, and the fact that a lot of it is commercial buildings, I’d think its extreme decline represents one or two big properties going broke and throwing off the average of a very small sample.
JimboSlice Says:
March 31st, 2009 at 10:50 pm
All the commenters making the point about DC being recession proof are missing a rather significant fact: the suburban areas and urban core are part of the same metro area. Lots of government workers own in Maryland and Virginia and commute into the city. The factor you are mentioning applies to both parts of the region.

No, you are missing the fact that you can’t extrapolate out from DC to other cities because DC is inherently different from all other cities in the US. That, and the obvious fact that you can’t extrapolate anything from 1 data point, no matter how good.
KeithoK Says:
March 31st, 2009 at 11:09 pm
I don’t think you can overlook the role of median as a measure of house prices in contributing to this result. DC, more so than its neighbors, has a lot of very expensive areas for housing, and a lot of less affluent areas, i.e., a bifurcated housing market. If the high end buyers are still able to buy, but lower end buyers are having problems buying, the median will go up, even if the price levels are dropping. Even if house prices are dropping across the board and houses that might have sold for $1 million a year ago are only selling for $900,000 and houses that would have sold for $300,000 a year ago are now selling for $200,000 the median can still be going up. If you go from having one $1M sale for each $300,000 sale to having two $900,000 sales for every $200,000 sale (and similar results across the price range) median price will rise even if every house is worth less. That’s the reason for measures like Case-Shiller that look at sales of the same house.

Assuming, though, that the difference is real and not just a result of using the median, iTulip.com published a theory explaining this behavior a few years ago: http://www.itulip.com/housingpriceregionscascade.htm.
In a few words, housing bubbles build from the center out, and collapse from the outside in. Note: this was published before the bubble collapse started, back when housing bubble denial was still in vogue.
jussumbody Says:
March 31st, 2009 at 11:13 pm
Looks like the richest areas held up the best, that seems pretty clear. The top of the market will be the last to decline, and it will decline the more slowly than the bottom of the market.
KeithoK Says:
March 31st, 2009 at 11:31 pm
No, you are missing the fact that you can’t extrapolate out from DC to other cities because DC is inherently different from all other cities in the US.

I think you’re missing the point here. It has nothing to do with extrapolating out from DC to other cities. The point is that it makes no sense to look at the recession-proof effects of the Federal Government stopping at the DC border (witness the fights over a DC commuter tax). Arlington, Alexandria, Montgomery County, and other neighboring areas are just as much a part of any recession-proof area resulting from Federal spending, and housing prices are going down there. I suspect that a lot of the people making this argument aren’t familiar with the DC area – but I could be wrong.

I’m sticking with the distorted median explanation until I hear a better one.
KeithOK Says:
March 31st, 2009 at 11:51 pm
On further thought, my example above with the $1M houses and $300K houses is a lot better for explaining the affect on mean than on median price. Median would be a little more complicated. But trust me, the conclusion is true, and it’s a well known problem in comparing medians, and it’s late and I want to go to bed.
Steve Sailer Says:
April 1st, 2009 at 12:13 am
As I’ve said over and over again, the people who got hit hardest by foreclosures tended to be blue-collar and lower-middle class people who bought in long-commute exurbs in the hope of keeping their kids out of the underclass.

The mortgage meltdown of 2007-08 didn’t happen among the affluent. That’s coming up. In Southern California, houses are selling again in crummy locations because prices have fallen so far that they are almost affordable again to the people who live in crummy parts. In Santa Monica, nothing has been selling because owners still believe they deserve $1,000 per square foot. They will eventually have a comeuppance, as will Manhattan.

But the problems _started_ among the most marginal homebuyers because there was a universal consensus among Democrats and Republicans, business and government, to push marginal prospects into mortgages.
joe from Lowell Says:
April 1st, 2009 at 12:22 am
No, you are missing the fact that you can’t extrapolate out from DC to other cities because DC is inherently different from all other cities in the US. That, and the obvious fact that you can’t extrapolate anything from 1 data point, no matter how good.

First, Jimboslice, this is completely off topic to what I wrote. You took the word “No,” appended it to a completely unrelated point, and posted in reply to my comment about the relative strength of the DC metro area’s housing market not telling us much about variation in that market.

Second, I didn’t extrapolate anything. I mentioned another region where the same pattern was evident.

But other than that, great answer.
bjk Says:
April 1st, 2009 at 6:44 am
http://www.dchousingprices.com/

The WaPo issued its annual DC area housing report Saturday and, once again, they continue to under report District sales. The WaPo says it uses the District’s data, but for the life of me I don’t know what data they’re analyzing and where the rest of it went. All I can figure is they ignored condo sales and threw away 1/3 of single family home sales.

According to the WaPo, 2239 homes sold in 2008, ending the year with a median sales price of $520,000. Moreover, the WaPo asserts that District median home prices rose when my data and MRIS’ show it fell.

. . .

Actually, District unit sales for homes and condos fell 11.75% to 6697 in 2008 while the median price fell 6.25% to $375,000.
Michael Says:
April 1st, 2009 at 7:05 am
Matt Steinglass said: “[the Zip-by-Zip] …shows the same old “where are the white people?” pattern.”

er, not quite. Anacostia’s holding it’s own while gentrifying Shaw and even lily-white Tenleytown are slipping; Takoma DC is up while next-door (and whiter) Takoma Park, MD (another linked map from the linked page) is way off. If there’s a pattern wrt the trend in prices (as opposed to absolute price), it’s probably closer to the newer-stock / what’s-been-going-up theory.

All of this misses the real scary numbers, though. Look at the chart below the map that Matt links. The volume of sales is way off in almost every neighborhood (except Petworth for some reason). Total home sales dropped 30 percent in one year — and that’s in the District, where prices were relatively stable. Kinda brings home the term “liquidity crisis”.
JD Says:
April 1st, 2009 at 8:37 am
I would second that last point based on anecdotal evidence–prices are fairly steady (if off a bit) but volume is way down. We bought a house in the 20001 zip code for $410k in March 2006. We refinanced the mortgage in March 2009 and the house was estimated to be worth $420k, a slight increase (but probably down from what it might have been estimated to be worth in 2007 or early 2008). That seems broadly in line with what comparable houses have sold for lately. The only thing is that there have been very few of those sales of late.
Paul Product Says:
April 1st, 2009 at 8:56 am
By the way, I’m not sure where all these references to claims that DC is somehow “recession-proof” are coming from. DC isn’t recession proof, and its real estate market isn’t either. I’m not sure who is (or who the commenters think) is making these claims. I think Matt’s point wrt Lazo’s article would be a more modest one — prices have held steadier in much of DC’s central neighborhoods (and its close-in ur-burbs) than in farther flung edge cities. The pattern isn’t uniform or universal across the metro area or within DC, but generally speaking, prices in DC seem to have dropped less precipitously than in, say, outer Loudon County (out past the tech corridor around Dulles airport). That doesn’t mean DC is recession proof, by any means. It just indicates that the demand for central, well-established neighborhoods seems for now to be somewhat higher. Glancing at the map with a basic familiarity with a lot of those zips, it looks like the areas with the least amount of speculative building and buying are the markets that have held up stronger, or conversely, the zips with tons of new condos and townhouses build in the last few years are seeing bigger price drops. That may be a stronger factor that centrality, convenience, etc.

But as others have pointed out, the WaPo’s sales data seems incomplete and perhaps inaccurate as well, so these tentative hypotheses may not hold up to real data.

Jimbo – I can’t quite figure out why you think DC is completely incomparable to other cities. Sure, it has a lot of government jobs, which means it may be insulated to some degree from the unemployment shocks in, say, Detroit or Atlanta. (And its central core isn’t as dense as NYC’s or Chicago’s.) So it wouldn’t be fair to hold up DC as some shining example that the national economy is just hunky-dory. But no one seems to be doing that.
Mike Says:
April 1st, 2009 at 10:38 am
Mike the Mad Bio: – 20036 isn’t Logan and south of U. It’s Dupont only and south of Q, which actually makes a big difference. It’s a lot of commercial real estate, apartments, and some co-ops and a limited number of townhomes. Tough zip to extrapolate much from. 20009 is U street, north Logan and Adams Morgan.
joe from Lowell Says:
April 1st, 2009 at 1:54 pm
Paul Product,

“Recession-proof” is a bit strong, but DC hasn’t seen as big a jump in unemployment or as big a decline in housing prices as other similarly-situated cities. This is probably a consequence of it being a government city during a period when the government is engaging in counter-cyclical fiscal policy.
EdTheRed Says:
April 1st, 2009 at 4:25 pm
@Mike the Mad Bio and Mike: Much of Logan Circle, including the Circle itself, is actually in 20005. Which isn’t to say that plenty of realtors out there aren’t willing to call all sorts of stuff “Logan” these days: LOGAN CIRCLE: MUST-SEE!!! CHARMING 2BR IN THE HEART OF LOGAN!!! (1425 3rd St. NW.)
EdTheRed Says:
April 1st, 2009 at 4:26 pm
BTW, in case it wasn’t obvious, that wasn’t a real listing…but it’s not far off actual ones I’ve seen. I’m just too lazy to look one up.
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Matt Yglesias

Central City Home Values Holding Up Amidst Collapse?

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