To: Tradelite who wrote (16071 ) 1/16/2004 12:51:25 AM From: Doughboy Read Replies (2) | Respond to Re: Valuation. I think there have been several good answers why DC property is "overvalued," which you seem to gloss over. Obviously the investment or rental value is a valid way of determining value of RE. Investors look for historic capitalization rates of 7-7.5% (Gross rental income/Price) in DC. From what I've seen, CAP rates have dropped to 6-6.5%, meaning that the expected return on rental real estate has dropped as rents have plummeted. Don't dismiss this valuation out of hand--there is a segment of buyers/developers out there that watch these rates very closely and generally control supply of new rental housing stock. Indeed, I've heard that many developers of high rent apartments in the Mass Ave. corridor have done an about-face and dumped the apartments they just built on the market as condos; that's bound to suppress condo prices. Conversely, there are buyers out there who have to calculate the relative merits of rent vs. buy. As the rental route is more attractive, demand is reduced for purchased housing. By this measure, DC housing is clearly "overvalued." Don't get me wrong, this is one of several legs that props up the housing market, and no single one is going to tell you whether housing is overvalued or not, but each does have an effect. And this is not an entirely academic debate for me since I own two homes in DC. On one SFH, I went from netting $1200/mo. to now losing $500/mo. since I had to re-let it this past summer. The DC market is clearly running on fumes--low interest rates and the "greater fool" theory. Don't be lulled; I'm sure you remember the decade-long stretch during the 80s and early 90s when housing prices barely budged. I expect we may see a return to that kind of market in the second half of this decade. JMO.
