THE BLOG
05/01/2013 04:59 pm ET Updated Jul 01, 2013

DC Real Estate Market Update: Heating Up With Summer?

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The calls are starting to sound the same. It's becoming impossible to differentiate one buyer from the next when the phone rings. You can hear the optimism and excitement when they begin.
"I am in front of a house at ___ address, can you tell me about it?"

Sure, I can tell them about it. I can tell them that there are four bedrooms, five full bathrooms, a three-car garage, a finished basement and 3,300 square feet. They will be excited, but that's really not what they want to know. They want to know the price, so I tell them what the seller is asking.

"Oh..."

It's like going for the jugular. It never gets easier to rip the hope out of someone's hands. Unlike Suze Orman during her "Can I Afford It" segment where she happily denies the wealthiest of consumers an opportunity to purchase a peppercorn, I actually don't enjoy this. The potential buyers reveal that they thought that it was still a buyer's market, and the asking price is about 40 - 50 percent higher than what they expected it would be. (That Suze segment is brilliant, by the way.)

In addition to the often-cited "strong government employment base" which keeps the market strong, there are also a lot of out-of-town buyers looking for property in the nation's capital. Probably 90 percent of the calls I receive on a current Georgetown listing are from New York buyers.

The DC real estate market is continuing the ride of rising prices -- which I still maintain is directly correlated to the lack of inventory issue. And that pesky lack of inventory issue? I still maintain that it is directly correlated to the fact that many properties that should be up for sale aren't, because the sellers are either unable to break even from what they paid or because property in DC is viewed as such a solid investment that the owner doesn't want to sell. In any case, that property goes off to become the newest member of the rental market supply.

The rental market continues to be strong, but there are signs that a change is on the horizon. According to Matt Rogers of EASE Property Services -- a Washington, DC rental management company, "this time of year, properties were traditionally renting within the first two weeks of being listed, but now they are taking several weeks to secure a tenant." Rogers says he needs every day of lead time to find a tenant because there is a lot of rental inventory on the market, adding that "the summer has traditionally been a time that the rental market has been very competitive with people clamoring to find housing but with the influx of new buildings coming on the market, it will be a curious to see if that continues this year."

I learned when working for the big boys in residential homebuilding that you can never pinpoint the true high and low of a market until you are six months out from it. By then, it is too late to make a good business decision because you are either chasing a market or furiously trying to cap your losses. Simple economics teaches us that we have a self-correcting economy but whenever we're all mired in the throes of an exciting market, we seem to develop amnesia for what could happen based on how similar markets have transpired in the past.

Property buyers in DC right now are chasing a market, facing multiple offers, battling price increases that outpace income increases, competing with out-of-area buyers and are operating out of fear of the inevitable interest rate hike. Does this remind anyone of 2005? It's like watching the entire city go by in a big circle marked "real estate bubble.

Tenants searching for rentals are on the cusp of seeing prices level off and an increase in rental inventory, which means they no longer have to sign leases within minutes of viewing an apartment for the first time. But if property owners can no longer get the high rents they want, what happens to supply in the sales market? Economics dictates some of these property owners will decide to sell, so supply should increase, and the cycle continues -- prices in the sales market level off, buyers see less competition and the bubble hopefully deflates instead of pops.

Phew! People in other parts of the country are envious of the DC economy, but boy, it is not easy being the popular kid.