Get Smart With City Chic: Is the DC Housing Market Going to Crash?

Get Smart With City Chic is a bi-weekly column giving you the real talk rundown on what’s happening with the D.C. real estate market. Sponsored and written by Lindsay Dreyer, the broker/owner of City Chic Real Estate.

Welcome to our first installment of Get Smart With City Chic! Today we’re going to tackle the question everyone’s asking: is the D.C. housing market going to crash?

Let me start by saying, I am skeptical of real estate agents who are always rainbows and sunshine about the housing market. Real estate isn’t a binary thing, there is never a “great time to buy” or a “great time to sell”. It all depends on your personal circumstances. So with that in mind, here’s my real take on a potential housing crash.

Recap of the 2008 Housing Crash

I’ll keep this brief, but this is important. The last housing crash was caused by subprime and predatory mortgage lending, along with home builders and developers building like crazy. So when the Great Recession hit, it was a perfect storm. People lost their jobs, which meant they weren’t buying homes and couldn’t pay their mortgages. And because prices crashed, they weren’t able to sell them. There were way too many homes on the market. Lots of supply, plus low demand, equals party’s over.

How is this different from 2008?

We have high demand and low supply — the complete opposite of the crash.

On the demand side, the largest demographic group in the US, the Millennials, are now in their 30s and in prime home buying age. They are buying their first homes and move-up homes, which is creating a crunch across the entire housing market.

On the supply side, home building hasn’t recovered from the crash. The graph below shows how many new single family units are being built, and it definitely isn’t enough to satisfy demand. Add to that the labor shortage, supply chain issues and inflation, and we’re dealing with a very unfavorable outlook on new housing supply.

Buyers have skin in the game.

For the past couple years, buyers purchasing in cash or with large down-payments was the norm, rather than the exception. According to BrightMLS, 7.5% of purchases were cash in 2005 compared to 16.1% in 2021. That’s more than double! This means these buyers are less likely to short sell or foreclose on their home, and have flexibility in price when it comes time to sell.

Predatory loans are a thing of the past.

The mortgage industry went through a whole restructuring, and new regulations came into play, so we no longer have predatory practices like negative amortization loans or pre-payment penalties. Mortgage companies have also bumped their documentation requirements, so borrowers have to prove they have the ability to pay back the loan.

Unemployment is low.

If people have jobs they can buy homes and pay their mortgages. Low unemployment usually correlates to a strong housing market. According to the Bureau of Labor Statistics, unemployment in D.C. was 5.4% in July, compared to a high during the recession of 11%.

Okay, get to it, will the market crash?

My prediction is no, not likely. Could we see a dip or a plateau? Of course. The condo market in particular is going through a rough patch where there’s more supply than demand. I’m also keeping an eye on affordability, which is driven by interest rates and home prices.

Currently, interest rates have settled in the 5’s and prices are stabilizing. We’re even seeing homes sit on the market longer than a week… and price reductions! It’s a new world!

Overall, the market seems to be heading more toward balance, not a crash — and if you ask me, that’s a great thing.

City Chic Real Estate is a woman owned, independent real estate company, specializing in helping first time buyers and sellers in the DMV. Book a no pressure, intro call with our team at citychicre.com/popville.