The Great D.C. Area Musical Chairs

A couple of conversations this week got me wondering: how much of the D.C. area's slow sales can be attributed to a massively changed migration pattern, leaving the region's supply totally unbalanced? And how much of this, in addition to exuberant housing payments, might be at the root of our current housing gridlock? Let's back up to 2019, before any of us had ever heard the word 'Covid.' D.C. had a pretty well-established migration pattern at that point. You'd move to D.C., rent for a few years, then buy either a condo or maybe even a rowhome in one of the gentrifying areas like Shaw, Logan Circle, Columbia Heights, etc. Once you had kids, some of those people would stay put, some would move to a single-family house in the city, and some would move to close-in suburbs, but relatively few would move very far out.

This dynamic wasn't without its issues. There was certainly a ton of displacement with the gentrification, but overall, it kind of worked for most housing participants for a few key reasons. D.C. had two big things going for it: it is relatively easy to build here. We put up a ton of apartments and also allowed easy conversion of row homes into condos. The city had also been losing population for over two decades, so there was plenty of distressed property to be converted into livable housing. All of the cool kids moved to the city, which took price pressure off the suburbs and created an ecosystem that kind of made sense. Young and single people, who didn’t care about schools or crime, lived in the city, and people with kids lived in the burbs. (A fun fact that I was admittedly shocked to learn: metro-wide, we had the lowest price appreciation in the United States since 2010, at a mere 68%.)

That has since broken down. A combination of remote work and crime in the city has pushed people into the suburbs, which has not only put pressure on prices there but kind of destroyed the entire ecosystem. I have three would-be D.C. clients: one isn’t quite ready to buy in the burbs but doesn’t want to buy in the city for both affordability reasons and the fear of crime getting even worse, so he’s renting. (The condo market in D.C. is an absolute mess, as it is usually substantially cheaper to rent than buy, but that’s another post.) Another buyer probably would have been a buyer in one of the gentrifying neighborhoods a few years ago but now doesn’t want to live there and is priced out of the “safer” areas. A third buyer would like to leave the city but is stuck in his underwater condo. That's three transactions that honestly have nothing to do with affordability per se but are nonetheless not happening. Then there are an untold number of buyers who would like to buy in the suburbs but are either priced out or there is literally nothing for sale. (The county I’m from, Montgomery County, has had a 70%—yes, 70%!—decline in inventory since pre-Covid, and most other counties aren’t far behind.)

All of this adds up to a totally unbalanced housing market before you get into affordability concerns. I’ve really begun to wonder if this isn’t a national issue and isn’t an underrated part of our currently dysfunctional housing market.

Anyway, I’m curious if anyone is seeing these trends in their market?