Soaring housing prices in Northern Virginia, Suburban Maryland and the District of Columbia may not be a “housing bubble”, says Raymond E. Owens, an economist with the 5th district Federal Reserve Bank. Rising household incomes in the Washington area, strong demand and restricted supply helps explain high housing prices in the Washington metro area, he told the Greater Washington Initiative earlier this week.
“Demand has been high in the Washington area partly because housing creation has not kept pace with job creation in recent years,” Owens said. “A ‘bubble’ is created when prices go up without any underlying economic reasons. But that’s not entirely the case in the Washington area, though we will only know the future path of area housing prices with the benefit of hindsight.”
“Residential building lots apparently aren’t being created fast enough to meet the demand,” Owens said. “Land developers say that the need to comply with environmental requirements, zoning laws, and delays in putting the necessary infrastructure in place – roads, water, electricity and sewer lines – limits residential lot development and thus the number of area houses being built. They tell us that it can take upwards of three years or more to take a housing project from start to finish.” (For details click here.)