In the first month of 2017 in Washington, we encountered two large economic benchmarks in the economy — record-setting stock levels and a local housing market that produced median home prices that reached record levels set in 2007 during the boom prior to the Great Recession.
Yet among the good economic news lies an issue which, if you’ve lived in the Washington area long enough, is something that you’re familiar with — lack of affordable housing.
As a real estate professional in pursuit of local market trends, I’ve noticed a recent pattern in the farther out suburban markets that has coincided with the increase in Washington housing prices. Farther out and traditionally rural markets are starting to see a noticeable increase in buying activity, and in many cases are making double-digit gains in both median home prices and in the average cost per square foot.
This may seem counterintuitive to the migration of millennials and baby boomers to the city. While it hardly compares to the urbanization trend, the movement to the far suburbs is gaining strength even as more house hunters find themselves priced out of D.C.
It would be logical to assume with the records being set in Washington median prices that the “closer in” regional markets such as Arlington, Bethesda and Falls Church would also experience above average increases, yet in 2016 this was far from the case. Yes, we saw a good overall market in 2016, yet inside the Beltway neighborhoods were much slower to grow than in years past, with areas like McLean and Bethesda both remaining largely unchanged year over year.
The reality is the Washington real estate markets have experienced consistent growth for eight straight years. Yet homeownership for many is out of reach, specifically in communities inside the Beltway and in Washington.
Naturally younger and growing families, or those looking for affordable housing opportunities, are forced to explore peripheral markets for affordable housing opportunities. As a real estate professional working in this market since the Great Recession, I have witnessed this with my buyer clients more in 2016 than ever. Even with historically great interest rates and a good job market, coming up with required down payments and monthly capital to afford housing inside the Beltway has forced many of my clients to consider alternative markets when searching for a new home.
Before I even go into the data, it is important to note the ways that I as a real estate professional use data to establish trends.
First, there are median housing prices, which simply define the middle cost of what a property costs in a given area. Though median prices are regularly used by industry experts, I find that simply focusing on them fails to tell the full story so I often turn to the cost-per-foot analysis to find supporting evidence. Any piece of real estate has an average cost per square foot so tracking those costs can provide clear insight to whether real estate in an area is rising or falling, and at what rate.
As I pored through 2016 data, I found that farther-out communities in Virginia and Maryland were largely outperforming neighborhoods inside the Beltway.
In Maryland’s Montgomery County, the median home price remained largely unchanged, as did the cost per square foot on average. Yet in areas like Montgomery Village, where the median home price and cost per square foot are well below the averages — $400,000 and $272, respectively — we saw the median home price jump 35 percent from $204,000 to $277,000 and saw solid gains in the cost per foot as well. The same was true for areas like Poolesville, Brookeville, Boyds and Clarksburg, which all saw solid increases in their median home prices. By contrast, Chevy Chase, Md. (with the exception of the Kenwood Forest community) saw the median home sale price slip by nearly 15 percent and the cost per foot drop roughly 6 percent.
This was not limited to Maryland, however, as we saw a very similar, if not more pronounced trend in Northern Virginia. One of the most expensive markets in Northern Virginia is McLean (22101), which has a median home price of $950,000. Yet in 2016, the 22101 Zip code experienced a 2 percent decrease in the average cost per foot and a flatlined median price.
By contrast Marshall, Round Hill, Warrenton, Lorton, Catlett and Middleburg all experienced double-digit increases in median home prices and strong gains in their cost per square foot. In both markets, I found most interesting that the areas that are below the county average median home price along with a below county average costs per foot almost always saw the greatest rates of growth in 2016. There are exceptions on both ends, but the trend line toward the lower costing markets making the highest gains is stunning.
As home prices and the cost of living continue to increase in Washington, there will be more demand for affordable housing which is often found in farther out regions of the counties.
The buying demographic that can afford record-setting home prices naturally becomes smaller by the year as that record outpaces real incomes. This trend coincides with increasing measures for telecommuting and as companies seek to cut overhead by relocating to farther out areas.
If 2016 is an indicator of what is to come in the Washington housing markets, I would imagine we will see a resurgence of growth and economic activity in our farther-out markets as buyers increasingly make those areas home.
Jonathan Fox is principal at the Fox Group with Compass in D.C.’s Logan Circle neighborhood.