Is the Washington, D.C.-area housing market bubbling again? | Cross River NY Real Estate

Average home prices in metropolitan Washington were up by double-digit percentages in three out of the past four months, and some have begun to wonder if they are heading toward unsustainable levels.  

How can prices in some neighborhoods be back to where they were at the peak of the housing market?  How can there be bidding wars again where potential buyers have to be prepared to make an offer — often with an escalation clause — at the open house?  How can it be so difficult for a first-time homebuyer to find a house in her price range that is not too far from her job? 

Are these all signs that we’re headed for another bubble here in the Washington area, even as much of the rest of the country is just beginning to feel recovery in their housing markets?

The short answer is no. At least not the kind of bubble we experienced in 2002 through 2006. A critical difference between the current market and the overheated market of the middle of last decade is the nature of the mortgage market. 

Stricter underwriting standards have limited the pool of potential homebuyers to those who are most qualified and most likely to be able to pay loans back. The demand this time is based more closely on market fundamentals. And the price growth we’ve experienced recently is “real.” Or “more real.”

Prices aren’t up everywhere across the region. In parts of the District, Arlington and Alexandria, average prices have returned to peak levels. For some neighborhoods and product types, demand is high and multiple offers are common. 

However, prices in many neighborhoods remain far below what they were six or seven years ago. Prices have been pushed higher in neighborhoods closest to jobs and transportation and where supply is more limited.