Over the last 25 years, single-family home prices in DC have increased nearly twice as rapidly as the US average, and unresponsive supply could be playing a part.
That’s according to the District of Columbia’s Office of Revenue Analysis’ recent study of Federal Housing Finance Agency (FHFA) data.
The FHFA has kept a quarterly index since 1991 of single-family home prices for the entire US, including metro areas. The index reflects how the same properties have changed in value over time.
Single-family home prices in DC have risen at an annual average growth rate of 5.9 percent over the 25-year period of the index, says the FHFA. Comparatively, national prices rose at an annual rate of 3.1 percent on average, and annual price changes in the DC metro area averaged annual increases of 3.4 percent over the same period.
DC’s price appreciation was similar to the US average from 1991 to 2002, although home prices lagged initially due to a “faltering” DC economy, says the Office of Revenue Analysis.
However, when national single-family home price appreciation began to accelerate after 2002, DC’s growth skyrocketed by comparison. From 2002 to 2016, single-family home prices grew at an annual rate of 36 percent nationwide, while appreciating at an annual rate of 147 percent on average in DC, according to FHFA data.
Meanwhile, prices rose annually by 55 percent in the DC metro area over the same period.
DC’s home price growth patterns also diverged from the rest of the country during the Great Recession. From 2006 through 2016, DC’s single-family home prices grew at an annual rate of nearly 38 percent, while they remained flat in the rest of the country. Prices declined 16.3 percent in the DC metro area during the 10 years from 2006 to 2016, according to FHFA data.
As to why have home prices have risen more rapidly in DC in the last 25 years compared to the rest of the country, the answer goes beyond income growth, suggests the Office of Revenue Analysis. DC’s income growth has been on par with the national average over the last 25 years. But since 2002, DC’s home price index has risen at a faster pace than the average household income of DC’s residents. Prior to 2002, income growth had outpaced home prices.
So the biggest factor supporting DC’s single-family home prices could be DC’s supply of single-family homes, which is “relatively fixed,” says the Office of Revenue Analysis.
And with demand for single-family homes in DC increasing, coupled with moderate income growth, DC’s “relatively inelastic supply” is expected to be a factor in rising prices.
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