Washington D.C. is among the top 5 large U.S. cities with the slowest growing rents. The D.C. housing market had a strong 2017, though there was modest growth. Tight inventory for houses means slower sales, but there may be more robust home price growth in 2018 due to increased jobs and wages from the recently passed federal budget.
Homeownership in D.C.
In 2017 the median price of single family homes rose just 1.4% to $649,000. Tight supply is rising prices, and sales are down across popular areas such as Fairfax County, Montgomery County, and Prince George’s County. Prince George’s County is the most affordable place to buy a home, with the median selling price at $270,000. In Loudon County and Arlington County, inventory of houses and condos is down 22% compared to last year.Improvements to public transportation in Arlington County and other developments are making it more desirable, especially to millenials who don’t want the high prices of central D.C.. Hyattsville is similar, with redevelopment leading to a spike in prices.
There is a dearth of entry-level and move up homes, which is a problem for millenials. The largest generation is growing in the housing market, but when the supply is insufficient in areas like D.C., homeownership is going to remain on the lower side. In D.C. slow development is in part due to rising labor and material costs.
In contrast, large condominium projects are kicking off again. After the recession, the trend was building small, boutique condos. Now that developers are taking on larger projects, the average unit count for condominiums will increase. Last year the average price of condos fell 2.85% to $426,500, and the number of sales decreased. Condos in the Maryland suburbs increased the most, 3.64% to $259,000.
The Rental Scene
D.C. is one of the most expensive places to live in the country, but rent prices aren’t accelerating immensely like in New York and San Francisco. It’s one of the few large rental hubs where there is slow growth.One of the reasons for that is that D.C. is not hurting for apartments. Every year since 2014, the D.C. area absorbs more than 100,000 apartment units, and because of this excess rents have dropped in some areas. Rent growth may be slow due to the number of developments, but with new renters coming in each year, prices are stable. There has only been a 2.4% year over year increase for all rentals, according to Rentcafe, and the average rent is $2,070 per month.
There are even some areas where rent is decreasing slightly in the last few years. Downtown is slightly lower from 2016; Navy Yard is down despite development of high-end residences; and NoMa is also down because of a surplus of development.
According to the National Low Income Housing Coalition, a person needs to make $34.48 an hour to afford to rent a two bedroom home in D.C., and $27.75 to afford a one bedroom. That’s using the rule of thumb to spend 30% of income on rent, but the reality is much different. Millennials will spend 45% of their income on rent by age 30.
Non-Residential
The so called “amenity war” is ongoing, as landlords upgrade their amenities to outdo their competition. This is mostly seen in the Class A office market, which is very competitive.Industrial rents will likely increase, as there is an increasing demand for warehouse space, but some of those same areas are being converted to residences. At the same time, high land prices are discouraging new industrial development.
For 2018, there will likely be a reasonable growth in home and condo prices. At the same time, the inventory constraints will mean low sales activity, and it could become more challenging.