How high is high in the D.C. housing market, where gains in median sales prices in a number of neighborhoods have exceeded 45 to 50 percent during the past two years?
Consider these facts:
If the houses in the Kalorama area straddling Connecticut Avenue move up in value at the same rate they did during 1976 and 1977, their median sales prices will be just shy of $250,000 at the end of 1979. In 1975, the median was $75,000.
If the appreciation rate in Cleveland Park continues at the same pace it followed in 1976 and 1977, the median sales price of houses there in 1979 will be over $206,000 (up from $76,750 in 1975), and will be over $300,000 by 1981.
If sales increases in dozens of neighborhoods continue as they have for the past two years, not only will the $100,000 D.C. house become a fond memory, but so will the $150,000 house. As it is, figures compiled by D.C. senior assessor George Altoft indicate that average sales prices for 26 of 54 principal neighborhoods were at or beyond the $100,000 level during the final three months of 1977. In 12 neighborhoods the average exceeded $150,000, and in one (Massachusetts Avenue Heights) it was nearly $300,000. Altoft says there are virtually no houses of any sort - however tiny and whatever bad state of repair you'll accept - available under $100,000 in Georgetown. The average there will exceed $200,000 sometime this spring and could go beyond $250,000 by the end of the year.
Neighborhoods traditionally known for their modest-cost brick detached homes and townhouses, like Petworth to the east of Georgia Avenue, will be well beyond the reach of middle income buyers in two to three years - $90,000 or more - if increases continue there at the brisk 41.4 percent rate of the 1976-77 period.
But how long, indeed, can these increases continue? Won't the bubble burst if prices are bid up at the dizzying paces experienced in the mid-1970s? Won't someone eventually be left holding the bag - the unhappy owner of a 12-foot-wide Georgetown frame house bought for $200,000 but worth less than half that in real market terms?
The answers are complex and inevitably speculative. No one can forecast national economic trends with certainty beyond a year. No one knows with certainty what the cost of money is going to be in mid-1980 - or the demand for D.C. housing. But assume that long term interest rates go no higher than 10 percent, that the overall national inflation rate stays over 7 percent and that the federal agency/congressional/legal/trade association establishment continues to expand rapidly in Washington. Then increases of 15 to 20 percent per year in D.C. neighborhoods through 1980 would not be surprising.
For that matter, as local economists and real estate market analysts suggest, increases of 15 to 20 percent wouldn't be surprising in a number of prime, close-in Maryland and Virginia suburban areas for the next couple of years.
The median household income profile here is the highest in the land and many families have large reserves of ready cash as the result of sales of previous homes. The "trade-up" phenomenon - dramatically visible in places like Georgetown, where the average downpayment now exceeds $70,000 - is one of the important fuels for the D.C. price increases.
So, too, are the many exceptionally high-income, two-worker households of young lawyers, doctors, government officials and other professionals in their late 20s to mid-40s.
There are "bubbles," to be sure, mixed with the D.C. price rises. And they're bound to deflate. Areas that have experienced two-or-three-year bursts of 40 to 80 percent appreciation in median sale prices - such as Massachusetts Avenue Heights, Crestwood and Kalorama - will tail off and come closer to the city-wide norm. They may still see faster appreciation rates than the average for D.C., but the huge annual gains will end. The median-priced Cleveland Park house won't be selling for over $300,000 in 1981, in other words, simply because demand and local incomes will not have risen fast enough to support that price.
(Next week: The tax consequences of D.C.'s rapid price increases)
(Kenneth R. Harney is director of the Housing and Development Reporter, published weekly by BNA, Inc.)