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Summer 2012: State of the DC Real Estate Market

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The market is hot again in D.C. and surrounding areas. But is this a good thing?

As a real estate agent, I can never de-slime the sentence, "This will sell fast." It feels very 2004 -- when a majority of the professionals in real estate, and I use the word "professionals" lightly, were pumping the furor. Unfortunately though, that's where we are in D.C. right now.

The current state of affairs began last year inside the District. Condos were suddenly in demand again. Then there was the lone agent in my office who, gasp, reported being involved in a multiple offer situation. The rest of us thought it was a one-time thing, but time quickly proved it wasn't. Multiple offers soon became the new normal -- especially on a renovated, well-priced home. If you have equity and are in the market to sell, the time is right. If you are in the market to buy or even rent, it isn't looking so good for you. And I hate to throw this monkey wrench in the situation but there are a lot of cash buyers floating around out there too to compete with.

The wave has now reached the suburbs as well. If you were hoping that you could move out to a desirable neighborhood in Arlington or Falls Church and not have to compete with multiple offers or homes going under contract within a day, sorry. Economics 101 -- when supply is low and demand is high, prices go up.

So where is the supply and why aren't there more homes on the market? It's anyone's guess. My opinion is that this is a repercussion of the turbulent market we just lived through. Everyone who would potentially sell now can't get their money back out yet because they bought in the last 10 years at the top of the market. They are either in a hold and see mode, or they are moving on and renting out their home to break even on a monthly basis and wait it out until they can sell.

Some of those people may never sell though because having an investment property in a booming market is a good thing. Rent prices are increasing along with house prices for a few reasons. The people who would be buyers but can't find adequate homes are delaying a purchase and renting, putting a lot more people into the rental market than there would be normally. The market of renters and homeowners needs to balance, and right now it's out of equilibrium. Couple that with the Transient Train which consistently dumps people off in D.C. for short-term gigs and there are always plenty of renters looking for housing.

For those in the market to buy, like several of my clients, the news isn't great. There are no more deals. There's little hope of finding the right home unless you can see homes and write contracts the moment they hit the market. Waiting it out means the price goes up.

Washington, D.C. is one of the markets currently enjoying year over year price appreciation. While in theory this is a good thing, when there's not enough supply, prices push above market rate. When emotions run high, people overpay, and emotions run high when things like "school is starting" or "my job wants me to start right away and I don't want to move twice" or "I lost the last three bids, I'm not losing this one" are the buyer's reality. Reduced supply. Increasing prices. We're potentially heading back in the same boat we just got out of.

While the news of a housing recovery makes people happy, another bubble is being created. Buyers who are escalating again are robbing their future equity. This is some of the same behavior that got us where we were before. Thankfully the creative lending piranhas have bitten the dust so hopefully this will be a less catastrophic bubble, but it's a bubble just the same.

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Melissa has been in the real estate industry for over 10 years and is a Realtor with Sotheby's International Realty in Washington, D.C.