We've been dipping our toes into the DC housing market recently, but after this weekend, I think I'm just about ready to give up. Anything that comes on the market at a decent price is snapped up almost immediately--by my count, mean time from listing to contract is under seven days. The only things that stay on the market long enough to look at fall into one of two categories:
1. The owner bought the house between 2004 and 2007, and wants to get their money back out, hopefully with a little profit . . . and has therefore priced their home at least $100,000 above what the market will bear.
2. The house has been rented, and the tenants, familiar with their copious rights under DC housing law, are essentially refusing to allow the house to be shown.
We've seen multiple halves of houses, where the house had been divided, and one of the units was still occupied by a recalcitrant tenant. In one case, we were invited to make an offer on the place contingent upon seeing the upstairs, at which point listing agent expected the owner would finally leap into action and . . . do what? This is a city that requires you to have a forecast of at least four days of good weather above 65 degrees in order to evict a tenant. And I've heard of one case in which they showed up to do the eviction, the tenant politely declined to be evicted, and the bailiffs went away again.
This should be a golden time for buyers with decent credit, stable incomes, and modest requirement for neighborhood safety. But there's almost no inventory, and what there is, can't be sold.
I spent the weekend in long conversations about why this might be with our real estate agent, and a friend who develops property in DC. There's a big "shadow inventory" of houses in late-stage delinquency or foreclosure, particularly in the areas where we want to buy. Why can't we find anything?
In part, because that shadow inventory isn't coming on the market. There are two components to this, one DC-specific, one not. The specific part is the aforementioned tenant laws, which make New York's arcane housing court system look like a bastion of pro-landlord sentiment. The only way to break a lease is to be a single-family owner who wants to take occupancy. The bank has to let the tenant's lease run before they are evicted, as well as give them ninety days notice of the intent to vacate the property. Given the difficulties of selling a house that cannot be shown, a lot of banks are choosing to do just that. Others are putting it on the market and then finding that, surprise! they somehow never can schedule a showing. Yet the banks are understandably unwilling to drag the tenants into court, which is very time consuming, and a huge burden on already overwhelmed administration.
The broader nationwide problem is that banks have a huge backlog of these bad loans, which means first, that they simply don't have the adminstrative capacity to put them all on the market at once, and second, that at least in the case of the larger lenders, they are trying to dribble them out over time and avoid crushing the market.
Meanwhile, the fall in house prices since 2007, even in DC, where the collapse has been relatively mild, means that no one wants to sell unless they have to. Everyone's hoping to wait until the market turns around--and given how optimistic people seem to be about the housing market, that's hardly surprising. So there's very little inventory other than distress sales, or people who have to move for one reason or another.
Meanwhile, DC is one of the relatively fortunate areas in this recession. Our unemployment rate is high, but it hasn't shot up the way it has in other areas, pushing previously solid homeowners to the brink of foreclosure. Meanwhile, the expansion of government is attracting ever more young professionals to the area. The combination means a lot of money looking to buy very few houses.
It's not totally unreasonable to think that prices will go up in DC, eventually; huge swathes of Northwest and incresingly, Northeast are gentrifying at a pace faster than anything I've ever seen--and before I moved here, I was a lifelong New Yorker. But even here, that shadow inventory means it's not going to happen for a few years.
Nationwide, we're probably looking at a long period over which house prices don't fall, but they don't really rise much, either, and the market sorts itself out by letting inflation eat away the nominal value of peoples' outstanding mortgages. And over here on Florida Avenue NW, we're probably looking at a few more years crammed into an oddly-laid-out one-bedroom-plus den flip house.
(Nav Image Credit: La Citta Vita/flickr)