April 20, 2006

DC MARKET OVERVALUED, SO WHAT?

Nearly everyone says the DC housing market is overvalued. Private Mortgage Insurers, for instance, estimate that the DC market is the 18th riskiest in the country.

Other see less risk. Credit Suisse First Boston LLC has declared the region "moderate and stable," assigning it a risk index of five out of a possible 10, says the WaPo. And Metro DC is nowhere near the top of the list of risky places in Economy.com's report, titled "Housing Correction or Crash."

But what is metro DC to us may not be metro to you. PMI for instance does not include Montgomery County as part of DC, but does include West Virginia. What does the prices of a one bedroom in Dupont Circle, which is near tons of restaurants, bars etc have to do with a single-family house in Martinsburg, which is near nothing?

Furthermore, much of the change in the DC market can be attributed to the much discussed paradigm shift. Prices have gone up in DC because capital moved to real estate, but prices are up too because DC is a better place to live.

How aobut this rule of thumb: the risk that you house loses value is in direct proportion to the number of feet you live from a metro station or major bus route, unless your house is worth more than $1 million then the opposite is true (think: Potomac or McClean).

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