April 29, 2008
NPR ran a great story about home prices in Washington DC. As you can probably guess, the biggest drops in prices occurred in suburbs way outside of the beltway. Some of these suburbs are so far away and so inconvenient that it can take 90+ minutes each way to commute to Downtown Washington. In those places, home prices are double-digit percentage slides, supply is overwhelming the market, fire sale auctions are failing to liquidate the properties, and construction has come to a grinding halt. And interestingly enough, properties in the city of Washington have increased by a median value of 3.2%, and some homes near Washington’s famous Metrorail stations are up close to 10%.
Of course, the casual observer could argue that Washington DC is a unique story, as few cities in this country can rival the convenience and usefulness of Metrorail (although New York City, Chicago and the San Francisco Bay cities probably come close). Nevertheless, even in cities with mediocre public transportation systems and weak economies, the same phenomenon is occurring. In my hometown, Cleveland Ohio, I’ve contended for some time now and still believe that downtown real estate is the only worthwhile property investment in town. While the Greater Cleveland area has been the poster child for the housing meltdown and foreclosures, downtown has been relatively unscathed, and is arguable the only part of the city where you can still find construction and development taking place. With the long-awaited Euclid Corridor project finally coming to life, once the housing market bottoms and the tides start to turn, the urban downtown, midtown, and University Circle neighborhoods are the first places where I expect to see development into the future – not the suburbs 15, 20, and 30 miles away from the city, which seemed to become wildly popular in the 90s.
A final takeaway from the NPR story is a quote from an economist who works on the Case-Schiller Home Price Index, as he says, buyers are finally asking questions like, "What is the cost of gasoline? What is the cost of my time?" These questions become easier to understand when viewed over a longer time frame. For instance, someone who lives in a suburb 30 miles from a major city, commutes one hour each way to and from work, and spends 2 hours per day in the car will spend 10 hours per week, and about 500 hours per year driving; that means every year this person spends over 20 full days doing nothing but driving a car; if you make the same calculation using 16 hour days (assuming the average person is asleep 8 hours per day), the number jumps to over 30 days per year. The value of that time has to be worth something, and finally, we’re beginning to figure that out.