May 31, 2007
Living in D.C.: Only Getting More Crazy Expensive
An Examiner story this morning is designed to fill you with dread for the coming D.C. Pricepocalypse. According to a study released Wednesday by George Mason University professor Stephen Fuller, the average price of a home in the national capital region likely will swell almost 3,000 percent in 50 years. The study predicts the average home in the metro area will be $14 million in 2057, compared to today’s average of $477,000. As if your nightmares about never being able to afford to buy a home in D.C. weren't bad enough already.
The D.C. metro area in 50 years will likely look much like it does today, only much larger. 10 million people will live here, but that will be because we'll still have more good jobs than we can fill, which is why so many folks will still want to live here. The reason home prices will go up so high is that we'll never be able to build fast enough to keep up, so prices will rise more than incomes.
But Fuller's suggestion in the article that we'll all need to move into tiny apartments closer to our jobs seems like a pretty tough proposition to achieve. As Harriet Tregoning, director of D.C.’s Office of Planning, wisely explains, the ability to afford a home in the future will be inextricably linked with how long your commute is: "If you live far away from where you work, you are captive to gas prices. You have nowhere to go except back to the pump to fill up three or four times a week.” We've discussed some of these issues before, and wonder whether focusing on improving our transportation infrastructure, so that people will be able to commute on mass transit from more and more places, wouldn't be a more workable plan.
Photo by grundlepuck
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Soooo...all I have to do is hold on to my inside-the-Beltway at-the-Metro condo for a few more years, and I'll be an instant multi-millionaire? Schweet!!!
So when will my neighborhood be un-ghetto-fied?
That's not a very good investment.
I have a bank stock that now sells at $34.58 a share. Bought it in 1958, my basis is just under 27.5 cents a share. It has paid a dividend averaging over 4% all of those 49 years.
If I had bought $477,000 worth, ignoring the dividends, the stock would now be worth $60 million, four times the rate of return predicted by the George Mason study.
What that is really saying is that the average home price will grow at about 7.2% per year, but the average income will grow about 5%.
I'm not sure, however, what that even means though. It doesn't necessarily mean that the average house will get an average return on investment of 7.2% because new homes will skew the average value. For example, if a $400k house gets knocked down and a 1.2 million dollar home is built in its place, that means the average goes up, but it doesn't mean the $400k house across the street is now worth 1.2 million too.
So based just on these basic numbers, it's not clear what to take away. Maybe it just means that the price at the higher end will go up a lot. It would mean something more to me if by average, they meant median.
So the real estate market would increase at a clip of roughly 7% per year. That's fine but it's roughly in line with the stock market historically. A solid, diversified portfolio of stocks sounds better to me.
Compund, you're comparing apples to oranges, a little. There's a difference between average return and average price. The average price can increase at a greater rate than the average return because new construction can make the average price go up without increasing the average return.
Meanstwhile, year over year, the median house price in DC is down 10% and the inventory is up 12%......
Sounds like another great real world study from within the ivory tower.
Over the past 50 years the value of a dollar has fallen over 90%, and this rate of decline is increasing. In another 50 years, $100 will be the new $2 bill
I'm skeptical of that level of growth. But even so, who cares. This is only shocking if you think the change could happen overnight. It will be so gradual that you won't even bat an eye by the time the average hits $14M. But I'm inclined to believe that urban sprawl and decentralization of homes and then jobs to follow will flatten that curve out to a large degree.
Why is the guy using average instead of median house price? The averages are horribly skewed in the DC area because of places like McLean and Georgetown, among others. In theory, using averages, Donald Trump or Bill Gates can come here and build a $1 billion house in southwest next year and the average price of houses will probably hit close to $750,000, yet the median price will remain relatively unchanged.
Also, is he using constant 2007 dollars or current year dollars?
There goes another member of the liberal intelligentsia, with their talk of "averages" and "medians" and use of "facts."
14 million for an average home?
is someone on crack?
I LOVE ridiculous predictions for what's gonna happen in 50 years! Fifty years ago, we were supposed to be living on the moon with our own personal sex android or flying around Los Angeles in jetpacks or getting shot through pneumatic trolly tubes. Yet what do we have to put up with today? Lousy sex androids with no enthusiasm chip and jetpack technology is barely good enough to work for my helper monkey.
What George Mason University prediction fails to address is the massive economic and social damage, and consequent real estate devaluation and collapse, as the result of the Eugenics Wars of the 1990s as led by Khan Noonian Singh (as played by Ricardo Mantalban). Only their banishment aboard the SS Botany Bay allowed relative social calm to return to the major world capitols and presage the establishment of the United Federation of Planets, along with the resultant credit-based economic system and banishment of all material want. So with the elimination of all economic inequality by 2029, along with first contact with emmisaries from the Planet Vulcan, clearly Dr. Fuller's predictions are highly skewed toward a consensus reality vision of local real estate pricing.
Monkey's in good form today!
I actually think Monkey should have his own Onion-style DC story thread on DCist. After all, at the very least, I want to know more about his jetpacked helper monkey.