<$BlogRSDURL$>
Return to Main Page | Ragout: Bubbly
Ragout
A Spicy Stew of Economics, Politics, Data, Food, Carpentry, etc.
 
Wednesday, April 27, 2005

Bubbly


In the Washington Post last week, Daniela Deane reported that "some economists warn of a housing bubble" in the DC area, with prices up 89% over the last five years. On the whole, it's an excellent article, with Deane suggesting that there is a bubble in the DC area.
Among the symptoms that some say point to a bubble: a widening gap between rental and ownership costs, a spike in the number of investors rather than occupants buying, and a ever-tighter affordability squeeze. Much of the boom in recent years has been sustained by low interest rates...But the consensus among economists is that interest rates will rise at least a little this year.
One economist who disagrees is David A. Lereah of the National Association of Realtors, who argues:
"Right now, most local areas have a lean supply of homes. And the Washington area is creating tens of thousands of jobs rather than losing any."

Continuing, Deane writes that

the Census Bureau reported last week that the Washington area added 75,000 residents last year, making it the fastest-growing metropolitan region outside the Sun Belt.

Today, the National Association of Home Builders writes in to the Post, making the same point about DC's rapid population growth.

One problem with this explanation is that the city of DC and the inner ring suburbs of Arlington and Alexandria aren't growing rapidly. They're actually losing population. And yet they have some of the steepest increases in house prices.

In fact, within the DC area, there's almost an inverse relationship between population growth and house price growth. Except for the outer-ring Loudon and Prince William counties, the fastest growing counties have the slowest rates of price growth.

Now, one could certainly reconcile the facts with the realtor's theory, by thinking about supply as well as demand. Maybe job growth is attracting people to the DC area but they're relatively indifferent betweeen living in the city or the suburbs. If there are supply constraints in the city, say because there isn't much land left to build on in the city, increased demand could drive up prices in both the city and the suburbs, even without the city's population growing.

But I'm not all that convinced. The suburbs with the most rapid population growth are fairly far out. It's hard to believe that many of Loudon's new arrivals would move to DC if only there were more housing available. And supply constraints in the city would have to be awfully severe for the city to actually be shrinking. So my money's on a bubble.


% Change from 2000-2004
County House Prices Population
Loudoun 83.8 41.0
Prince William 95.5 19.9
Calvert 35.8 16.0
Charles 46.3 12.7
Frederick 46.2 11.5
Howard 48.1 7.6
Montgomery 68.4 5.5
Prince George's 48.0 5.2
Anne Arundel 59.1 3.9
Fairfax 80.4 3.4
Alexandria 91.3 -0.1
Arlington 82.0 -1.8
District of Columbia 85.9 -3.2

Source: Washington Post (house prices seem to appear only in the print version); Census Bureau
 
|










































Number 1 in Ragout Economics!

ARCHIVES
March 2004 / April 2004 / May 2004 / June 2004 / July 2004 / August 2004 / September 2004 / October 2004 / November 2004 / December 2004 / January 2005 / April 2005 / May 2005 / June 2005 / July 2005 / August 2005 / September 2005 / October 2005 /

LINKS
First Team
Angry Bear
Atrios
Crooked Timber
Brad DeLong
Econbrowser
Economist's View
Freakonomics
Mark Kleiman
Nathan Newman
Political Animal
Max Sawicky
Brian Setser
Sock Thief
Talking Points Memo
Tapped
Matthew Yglesias

Second Opinion
Stephen Bainbridge
Marginal Revolution
Andrew Samwick
The Volokh Conspiracy

Third Way
Fafblog
NewDonkey

Fourth Estate
Economic Reporting Review
New York Times
Slate
Washington Post

Fifth Republic
Ceteris-Paribus
Econoclaste
Le Figaro
Le Monde

Sixth Sense
Deltoid
The Intersection
In the Pipeline
What's New

Politics & Polls
Daily Kos
Donkey Rising
Electoral Vote Predictor
MyDD
PollingReport
PollKatz
Rasmussen Tracking Polls

Other
Art Sucks
Enzo Titolo
L’esprit d’escalier
A Level Gaze
Approximately Perfect


EMAIL
ragoutchef at yahoo dot com

[ATOM]

Powered by Blogger