Are we REALLY number 1? 

Is now the time to buy real estate? 

Is Washington DC real estate a safer investment?  

Do investors know something that the rest of us don’t?

 
Despite all the bad news we read every day regarding the real estate market, here, in the DC Metro area, there are rays of sunshine that can be seen between the real estate clouds.  In certain local zip codes, we are being pleasantly surprised by news of decreasing inventory of unsold homes, signs of price stability and the sense that our market is much more stable than many others.
 
Although our overall metro area has seen nearly a 20% decline, in the city itself, values are holding more steadily.  In the city, the main ideas seem to be that volume is way down, but value is holding pretty steady in many locations.  Among single family homes, volume dropped precipitously – City wide, in 2008, we saw over a 22% decline in the number of transactions closed.  However, 2008 Q3 data showed that half of the 22 zip codes in the District of Columbia, median sales prices for single family homes were actually up.  Through this period, the average sales price for a home in the city had declined, from $568,200 to $546,200.  (I hope to get info out on Q4 when it becomes available shortly).  Most people agree that, compared to many other U.S. cities, this is not that bad.
 
Are experienced real estate investors able to see something that the rest of us don’t? 

Among my clients, investors seem to smell an opportunity.  They have suddenly become much more active.  They are calling and emailing, asking about deals and opportunities.  They are looking for distress sales.  They are trying to discern which are the areas that have been hit hard enough by the downturn to present opportunities, without presenting too much risk, especially considering the volatility in our economy, generally.  My team is working on a lot of distress sales – so called “short sales” and bank owned sales.  We are working hard to unearth special opportunities; looking in the right places; asking the right questions.  We are keeping a keen eye on inventory levels, the job market (after all, people must be employed if they are to buy or rent the property you just bought), and of course, interest rates, which have reached tantalizingly low levels again recently.
 
There does seem to be good reason for hope.  While it’s still too early to see concrete evidence of an anticipated Obama bounce, some are predicting that government spending and activity in Washington will provide a material boost to local employers, thereby stabilizing our local job market, and lifting our commercial and residential real estate markets.   We shall see.  I worry at times that, by hanging out with Realtors, I may become too bullish.  Below are two articles on real estate that I found interesting.  The article from Forbes.com actually ranks DC #1 among the “World’s Best Places for Real Estate Buys.”

The Wall Street Journal

Housing Inventory Shrinks in Many Markets

The glut of homes listed for sale continues to shrink gradually in many metropolitan areas.
In November, the supply of homes available for sale in 29 major metropolitan areas was down 3.6% from a month earlier, according to figures compiled by ZipRealty Inc., a real-estate brokerage firm based in Emeryville, Calif. The ZipRealty data cover all single-family homes, condominiums and town houses listed on local multiple-listing services in the 29 metro areas where the firm operates.
See more detailed inventory data.
On a national basis, home inventories typically decline modestly in November from October. Over the past 25 years, the average decrease in November has been 1.9%, according to Zelman & Associates, a research firm.
The November inventory in ZipRealty's 29 metro areas was down about 10% from a year earlier.
Nationwide, about 4.2 million previously occupied homes were listed for sale at the end of October, according to the National Association of Realtors. That is enough to last about 10 months at the current sales rate, the trade group says. The housing market is considered roughly in balance between supply and demand when the inventory is around six months.
These inventory data don't capture the entire supply. Newly constructed housing and foreclosed homes, a big part of the supply, aren't always included in Realtors' multiple-listing services. In addition, many people have taken their homes off the market in the hope they can get a better price later. Those homes will come back on the market eventually.
"Sellers appear to have finally gotten the message that if you don't have to sell, don't put your house on the market right now," says Patrick Lashinsky, Zip's chief executive officer.
The Zip data don't cover New York City. But Miller Samuel Inc., an appraisal firm there, says there were 9,348 cooperative apartments and condominiums on the market in Manhattan at the end of November, up 4.7% from October and up 38% from November 2007.
Write to James R. Hagerty at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Forbes.com

World's Best Places For Real Estate Buys

Ten cities investors will target in 2009.
In Depth: World's Best Places For Real Estate Buys
 
 
 Washington, D.C., traditionally takes a back seat to world cities like London, New York and Tokyo when it comes to real estate investment.

That's likely to change.

Thanks to a proposed $1 trillion wave government spending, investors are flocking to D.C. for opportunities in the commercial and residential real estate markets. All these new programs will need offices, after all, and their employees will need places to live.

This year, Washington leapfrogged London for the first-place ranking in the world's best cities for real estate investment. But don't count out the world's financial capitals just yet--even with massive financial troubles in London and New York, those cities finished second and third, respectively.
In Depth: World's Best Places For Real Estate Buys

Why?

It's the appeal of long-term stability, and fears that emerging countries are going to take a harder hit. While the U.S. property market sputters, China is poised for its worst deflation in a decade, focused heavily on property price declines, according to Deutsche Bank (nyse: DB - news - people ). "For the U.S. and U.K., part of it is flying back to safety," says François Ortalo-Magne, a real estate professor at the Wisconsin School of Business. "For China and India, there's a sense that we went there and tried it, but it wasn't producing."

Behind the Numbers 
Forbes' rankings come from the Association of Foreign Investors in Real Estate, a research association that tracks where member investors are finding the best opportunities around the world. AFIRE surveys its 200 members, who collectively hold $700 billion in cross-border real estate. U.S. cities surged up this year's list: San Francisco moved to sixth from 24th last year; Los Angeles moved to seventh from 19th; Houston moved to eigth from 32nd. Cities in the Asia Pacific region dropped: Sydney fell to 11th from ninth; Hong Kong dropped to 22nd from 10th place. dropped to 22nd from 10th place.

This year, investors know that valuations can't be trusted. In 2008, the American residential market fell 19%, according to the Case-Shiller index; U.K. prices dropped 16% according to Nationwide, a U.K. builder. Commercial values in both countries have started to soften due to recessions on either side of the pond. In 2008, investors tried to call the bottom and gambled in emerging markets. This year, they're looking at premium locations in cities with proven track records. "We don't feel comfortable that we are able to identify what value is," says Richard Kessler, chief operating officer of Benenson Capital Partners, a global real estate investment group. "Having said that, if an opportunity exists on Park and 57th Street, or something we've always wanted to own on Pennsylvania Avenue in D.C., or some other very strategic long-term asset, we would look at it."

That makes 2009 the year of playing it safe and not chasing exotic opportunities in far-flung locations. It's even injected a sense of humility into the investing world.
"There used to be a rivalry between New York and London," says Kenneth Patton, divisional dean of the New York University Schack Institute of Real Estate. "The subject has shifted to the fact that we're both in the same lifeboat, and maybe it's leaking."

While some investors play it safe, others are content to wait out the real estate downturn entirely.
"Most of the [usual] participants are sitting on the sidelines," says Kessler. "There's a lot of capital, but everyone is uncomfortable about deploying that capital."
For their part, the optimists think 2009 might be the year that sideline money starts to come back into the marketplace--and, especially for the cities on this list, it will come back in a flood, not a trickle.

"There's a lot of money that needs to be invested, says Ortalo-Magne. "The instant people feel an inkling of a turnaround, money is going to flow in."
Whether that inkling comes in 2009 or 2010, however, is an altogether different question.

No. 1: Washington, D.C.

Commercial and residential real estate often function as different markets, but both need low unemployment and strong job growth to put money in the pockets of consumers and help businesses to succeed. At present, D.C. has the lowest unemployment rate in the country--4.1%, compared to the 7.2% national average. With President Obama's stimulus package recommending $1 trillion in new spending, it's unlikely government jobs--and those they support--will be leaving the District anytime soon.